Customer Needs and Factors That Affect Them Flashcards
What is the annual exempt amount?
The tax-free allowance on Capital Gains Tax (CGT) which is £12,300 and cannot be carried foward.
CGT is payable by businesses and individuals on what?
Gains made on the disposal of certain assets.
What are Chargeable Lifetime Transfers (CLTs)?
A gift placed in a trust where the trustees have discretion over income and capital.
What is an emergency fund?
A lump sum to meet unexpected expenditure. Must be sustained to a sufficient amount over an individual’s lifetime.
What is income tax?
Tax paid on most sources of income that an individual will receive in a tax year.
What is monetary policy?
Monetary policy refers to the actions taken by a country’s central bank (e.g. HMRC) in order to control money supply and achieve macroeconomic goals that promote sustainable growth.
What is the nil rate band?
The tax threshold for IHT. £325,000.
How much in Inheritance Tax usually charged at?
40%
What are three examples Potentially Exempt Transfers (PETs)?
- Gifts made into a bare trust (where the beneficiary has an absolute right to income and capital).
- Gifts made to another individual
- A gift placed into a trust for a vulnerable beneficiary.
What is personal allowance?
£12,500. The tax threshold for income tax.
In which two instances would personal allowance differ from the usual amount in the UK?
- When an individual is registered legally blind the personal allowance is increased.
- If an individual receives an income amount over £100k
What happens to the personal allowance if an individual earns over £100k income?
For every £1 excess, £2 is lost from the personal allowance amount.
When is IHT payable on a PET?
If the donor dies within seven years of making the payment or the value is greater than the nil rate band available on the PET.
What is an unpredictable event?
An event that may or may not happen.
How can an individual plan for an unpredictable event?
By paying premiums into an insurance policy that will never be paid out should the event never take place.
Define Capital Gains Tax (CGT).
Tax payable by individuals and businesses on gains made on the disposal of certain assets.
What is dividend allowance?
The tax threshold for dividends - £2,000.
What is fiscal policy?
Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
What is Inheritance Tax (IHT)?
Tax payable on an estate after death.
How is IHT calculated?
By taking away the nil rate band from the value of the estate. IHT will be 40% of that amount.
IHT is payable on what?
- The value of an individual’s assets on their death.
2. Transfers of assets through an individuals lifetime.
What are National Insurance Contributions (NICs)?
Paid by most UK individuals alongside their income tax to the National Insurance fund.
What is the National Insurance fund used for?
Exclusively to pay for contributory benefits.
Name 5 examples of contributory benefits.
- New state pension
- Jobseekers allowance
- Maternity allowance
- Employment & support allowance
- Bereavement payment
What is the Pay As You Earn (PAYE) system?
The system which deducts income tax and NICs from an employed individuals gross earnings.
What is personal savings allowance?
A set amount within which savings interest can be received free of income tax. £1,000 for basic rate tax payers and £500 for higher-rate tax payers.
What are predicable events?
Events that will require a sum of money in the future.
What does the FCA define a vulnerable customer as?
‘Someone who due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.’
What is Financial Planning?
The process of making provision for financial needs that may arise in the future.
Financial planning can be categorised into what two events?
Predictable and unpredictable events.
What are the three phases in the simplified personal financial lifecycle?
- The vulnerable years.
- The relaxed years.
- The anxious years.
What are three things providers will consider when mapping solutions to customer needs and demands?
- Industry developments.
- Technological advancements.
- Customer feedback.
What are some limitations of the lifecycle model?
Some lives and incomes do not fit the pattern and divorce and early death can affect financial needs.
What are the four drivers of customer vulnerability which should be considered by firms when offering financial services?
- Health
- Life events
- Resilience
- Capability
What are four examples of other taxes than income tax, CGT and IHT?
- Stamp duty land tax (SDLT)
- Stamp duty reserve tax (SDRT) and stamp duty
- Value added tax (VAT)
- Corporation tax
State the common financial planning priority for the ‘Childhood’ lifecycle stage.
Establish savings.
State the common financial planning priority for the ‘Married with older children’ lifecycle stage.
Protect the family and invest.
State the common financial planning priority for the ‘Later life/receiving care’ lifecycle stage.
Spend income and redistribute wealth.
State the implications of an individual’s financial planning of being deemed to be a UK resident.
The individual may be liable to UK income tax on both their UK income and foreign income if they are deemed to be a UK resident. This usually occurs if the individual spends more than half the tax year in the UK.
Which form of Government policy uses interest rates to control increases in inflation?
Monetary policy - increasing interest rates will make it more attractive to save money as opposed to spending it. A reduction in consumer spending will lead to a fall in inflation.
Dimitri is an additional-rate taxpayer. What will his personal savings allowance be for the 2020/21 tax year?
As Dimitri is an additional-rate taxpayer, he is not entitled to the personal savings allowance.
How much personal savings allowance are basic-rate tax payers entitled to?
£1,000
How much personal savings allowance are higher-rate tax payers entitled to?
£500
What are five assets/investments that are exempt from CGT?
- ISAs
- UK gilts
- Main residence
- Gambling winnings
- Chattels sold for less than £6,000
What is the main purpose of protection planning?
To provide a sum of money to those people who depend on you financially should you die or be unable to work through illness.
What is business contingency planning?
Planning to help prevent a person’s business from collapsing in the event of their illness, retirement or death.
What is the purpose of retirement planning?
Help reduce a person’s chance of ending their life in poverty or becoming a financial burden on their family in old age.
What is the purpose of life/death planning?
Knowing a substantial amount of tax won’t be deducted when passing on wealth to the next generation.
What is the purpose of Her Majesty’s Revenue and Customs (HMRC)?
To act as the UK’s tax authority and be responsible for collecting all taxes and setting out tax legislation.
What are tax allowances?
Permitted amounts of capital or income which attract favourable tax rates and in some cases tax freedom which are often provided annually.
What are tax reliefs?
Permitted reductions in the amount of tax you pay.
What is net income?
The amount of income received once income tax has been deducted.
What is gross income?
Your income amount before tax is deducted.
What is taxable income?
Gross income minus the personal allowance.
What is the adjusted net income?
Total taxable income minus trading losses, pension contributions and gifts. This is only used to see if the individual’s personal allowance should be reduced.
How are Employee Class 1 NICs paid?
Deducted from payroll through PAYE.
How are Employer Class 1 NICs paid?
To HMRC on a monthly basis.
What is the gain in CGT?
The amount calculated by deducting the cost of purchase/acquisition of an asset from the cost of disposal.
How is the chargeable gain amount calculated?
By deducting the annual CGT exemption and costs of acquisition/disposal from the gain.
What are certain business assets?
These are assets which are owned in part or full by a sole trader or business partner. They can also be defined as significant shareholding in a company (more than 5% shares and voting rights).