Chapter 2.2 MCQs Flashcards
Who of the following would be subject to the MPAA rules in the 2019/20 tax year?
i) Declan, aged 72, who entered flexible drawdown in 2013 when he took an income payment of £10,000. He next plans to take an income payment from this fund in September 2020. He has no other private pension plans.
ii. Tanya, aged 56, who crystallises a personal pension plan valued at £100,000 in May 2019 from which she receives £25,000 PCLS and then designates £75,000 to flexi-access drawdown. She then takes an income of £10,000 from her flexi-access drawdown fund in March 2020.
iii. Lukas, aged 65, whose only pension is a capped drawdown plan which he started in 2014. In 2019/20 the basis amount is £35,000 and he draws an income of £52,000 from the fund.
a. I and ii only.
b. I and iii only.
c. ii and iii only.
d. I,ii and iii.
The correct answer is a) I and ii only.
Declan is subject to the MPAA rules as he was a member of a flexible drawdown plan prior to 6 April 2015.
Tanya is also subject to the MPAA rules as she first accessed the income from her flexi-access drawdown fund in 2019/20.
Lukas is not subject to the MPAA rules as he only takes an income from his capped drawdown pension fund and the income he takes is within the maximum permitted (i.e. 150% of the basis amount of £35,000 = £52,500 and he took an income of £52,000).
CII Q2.12) Each of the following pension scheme members has only one pension fund and has nominated a non-dependant to receive their pension benefits when they die. Assuming that in all cases the nominee chooses to take the benefits as a lump sum, in which of the following cases will the benefits be tested against the member’s lifetime allowance?
a. Kyler, who died aged 56, with uncrystallised funds valued at £430,000.
b. Sue, who dies aged 76, with unused funds valued at £760,000.
c. Sarita, who died aged 67, with funds held in a flexi access drawdown plan valued at £1,570,000.
d. Lucian, who died aged 77, with funds held in a capped drawdown plan valued at £2,340,000.
The correct answer is a.
Kyler’s funds were uncrystallised and he died before his 75th birthday and so a lifetime allowance test must be carried out.
Sue had unused funds but as she was over the age of 75 when she died her funds would have been tested against her lifetime allowance when she reached her 75th birthday.
Both Sarita and Lucian’s funds were already crystallised and so would have already been tested against their lifetime allowance.
Herbert died, aged 60, in March 2018. In January 2017 he had purchased a lifetime annuity with £400,000 of previously uncrystallised funds. Herbert included annuity protection of 60% and when he died he had received gross payments totalling £23,500.
Herbert did not nominate anyone to receive his benefits and after an investigation the scheme administrator determined that 60% of the benefits should go to Herberts mother, Rebekah aged 83, and the remaining 40% to his brother, Edgar, aged 48.
How much will Rebekah and Edgar each receive as an annuity protection lump sum death benefit if the payments are made in May 2019.
a. Rebekah will receive £58,455 and Edgar will receive £38,970.
b. Rebekah will receive £71,445 and Edgar will receive £47,630.
c. Rebekah will receive £129,900 and Edgar will receive £86,600.
d. Rebekah will receive £225,900 and Edgar will receive £150,600.
The correct answer is c.
Herbert opted for 60% protection (i.e. £400,000 × 60% = £240,000). When he died he had received payments of £23,500, meaning that the ‘unused’ funds totalled £240,000 – £23,500 = £216,500.
Herbert was under the age of 75 when he died and so the payment can be made to his beneficiaries tax-free.
This means that Rebekah will receive 60% of £216,500 = £129,900 and Edgar will receive 40% of £216,500 = £86,600.
CII Q2.14) Meera, aged 73, died in May 2019 and left her uncrystallised defined contribution pension funds to her husband, Rajeev. Which of the following best describes the tax treatment if Rajeev uses these funds to purchase a dependants lifetime annuity in August 2019?
a. They will be tested against Meeras lifetime allowance and the income will be taxed as Rajeevs pension income.
b. They will be tested against Meeras lifetime allowance but the income will be paid free of income tax to Rajeev.
c. They will not be tested against Meeras lifetime allowance and the income will be taxed as Rajeevs pension income.
d. They will be not be tested against Meeras lifetime allowance and Rajeev will receive the income free of income tax.
The correct answer is b.
The funds are being used to purchase a dependant’s lifetime annuity.
This is now a BCE (BCE 5D) and so there is a test against the member’s lifetime allowance.
Meera was aged under 75 when she died and so the income received from the dependant’s annuity is paid tax free.
Which of the following forms of income may be able to be paid as tax-free income to a dependant?
i. Scheme pension
ii. Flexible lifetime annuity
iii Capped drawdown
a. I and ii only
b. I and iii only.
c. ii and iii only.
d. I,ii and iii.
The correct answer is c.
A scheme pension is always taxable (the rules did not change as a result of the Taxation of Pensions Act 2014).
A dependant’s capped drawdown plan may be paid tax free if the income stream does not commence until after 5 April 2015 and the previous holder died under the age of 75.
A dependant’s flexible annuity must have been set up on or after 6 April 2015 so could be paid tax free if the member died prior to their 75th birthday.
