Exam June 2018 Flashcards
What is principles based regulation?
Moving away from prescriptive rules towards giving firms responsibility to align objectives with regulatory requirements. Having rules to cover every aspect of financial services is neither practical nor desirable.
What is FSMA 2000 and Financial Services Market Act 2012?
FSMA is an act of Parliament notable for creating a single self regulating organisation - the FSA in 2001. Following the GFC the Financial Services Market Act 2012 amended the tripartite regulation of the FSA, BoE and HM Treasury and formed the FCA and PRA. While the FCA is also an independent regulator it is very much account to HM treasury and through it to Parliament.
What are the calculations for a DB pension scheme?
a 1/40 and 1/60 is number of years divided by 40 and 60 respectively then pumliplied by your final salary. There is no 3x on 40 and 60 schemes. for a 1/80 scheme your salary is paid 3x the amount on the first year TAX FREE.. They are linked to RPI..
What are the options regarding lifetime allowance on pensions?
Primary protection - on A day 05/04/2006 you could take the percentage over £1.5m on a sliding scale. so £1.7m = (1.7/1.5 = 113%)
Fixed contribution - will fix you at £1.25m but can’t top up.
Individual - will fix your level so if markets drop you can top up.
How much can you pay to your pension? How many years backdatable?
What are pensions contributions allowance once accessed?
£40,000 backdatable 3 years (£120k total)
Reduced to £10k once accessed.
In 2021 the age to access will rise to 57 and.
Pension contributions are tapered £2 for £1 over £150k to a minimum
What is capped drawdown?
For pensions before the freedom rules which came in 6th April 2015 there was a cap on draw downs of 150% of the GAD rate for income relative to what could be achieved from an annuity. Reviewed every 3 years if under the age of 75.
- Max withdrawable is £40k and if you exceed this then you are considered to have entered flexi-access drawdown and you may lose tax benefits above the MPAA.
- Money Purchase Annual Allowance MPAA will be set at £10k for 2018/19. Once you exceed your cap you cannot re-enter capped drawdown.
What is the Trustee Act 2000?
The Act provides statutory powers to trustees Duty of care Right to invest Need to diversify Principles based.
What is income payment protection insurance?
Inability to work through sickness or incapacity.
Deferred period affects premiums paid. Usually 4, 8, 13, 26, 52 and 104 weeks.
Individuals between 18 - 59 and cover stops at 65.
Restrictions if policy holder becomes unemployed for reasons other than illness or incapacity.
Paid tax free a sum usually around 50 - 75% of your gross salary
Resident in the UK
Benefit usually limited to a cap against the persons salary.
Premiums can be relatively expensive as it may be paid for a prolonged period.
What is critical illness cover?
A list of illnesses covered in the policy are specified.
Excludes AIDS and self inflicted injury or injury resulting from war or civil unrest. May nto cover pre exisitng conditions.
No tax paid on benefits.
Can be term or whole of life
A survival period of typically 14 - 30 days from diagnosis.
Underwriting from insurers.
Pays a lump sum on DIAGNOSIS of a wide range of critical illnesses which is expected to cause death within 12 months.
Available aged 18 - 64 and must end before the age of 70.
Premiums can be expensive for stand alone policies.
How are Bare trusts taxed?
The Income and gains are treated as those of the beneficiary and will be taxed at their marginal rate.
Beneficiaries can use the usual allowances.
PET
How are discretionary trusts taxed?
Income - Standard rate band (first £1000) is charged at 7.5% divs and 20% non-div. There after its charged 45% and 38.1% respectively. (max 5 trusts)
Gains - are taxed at 20% over a half allowance of £5,650.
Beneficiaries will receive income with a 45% tax credit whoch is reclaimable for BRT payers. The beneficiary will not be charged on gains as this is done within the trust..
IHT - CLT 20% and tapered for the extra 20% if the settlor dies within 7 years.
10 yearly charge up to 6%
Can claim holdover relief for CGT purposes when receiving shares as part of the transfer. CGT only payable when trust sells.
How are Interest In Possession Trusts taxed?
Income = Life tenant
Capitall = Remainderman - Trustees must balance the interests of both.
Income - Trustee charged at the same rate as individuals.
20% income (no 40% band) and 7.5% dividends. Beneficiary pays marginal rate on distributions.
Gains - 20% over half allowance of £5,650
IHT - CLT for trusts post 2006 so 20% payable above the NRB
10 yearly charge up to 6%
Can claim holdover relief for CGT purposes when receiving shares as part of the transfer. CGT only payable when trust sells.
What are the two types of Power of Attorney?
General POA - Covers financial affairs and can be used while the donor still has mental capacity. The POA ceases when the person granting loses mental capacity.
Enduring POA - Has authority under English law to act on some else’s behalf for legal and financial matters and can be used in force if the granter loses mental capacity.
How are intestate estates dealt with?
Wills must be in writing signed and witnessed.
Spouse receives first £250,000 plus chattels and half the residual amount.
Children receive a fair portion the other half if over 18.
If joint tenancy is in place this will take precedence.
What is GDPR?
The data protection principles set out hte main responsibilites of a firm:
- Lawfulness and transparency
- Info only for explicit purposes
- Adequate and relevant to what is needed for
- Accurate and up to date
Breaches to be stated within 72 hours to the Information Commissioners office.
Controllers will now utilise opt in marketing rather than opt out.
Data subjects have the right to object, withdraw and erase data.
Reasonable data requests must be free of charge.
Rectification of errors must be complete within one month.
Breaches of data use can result in fines the higher of €20m or 4% of worldwide turnover.
what is quick succession relief?
What is business property releif?
Agricultural property relief?
If you die quickly after receiving an inheritance before 5 years then the tax payable is reduced.
100% IHT relief on interests in unincorporated business and AIM shares.
50% - for controlling shareholdings in fully listed companies and land and machinery used for business.
100% on owner occupied farms and land on a grazing licence.
What is VAT?
What is corporation tax rate?
Companies with £85,000 taxable turnover.
20% standard rate on goods and services - Vehichles, furniture, consultency fees.
5% Reduced on Fuel, repairs and maintenance services
0% Exempt on provisions of credit and insurance
Corporation tax = 19%
What is the main Residence NRB?
£100k - 2017/18*
£125k - 2018/19
£150k - 2019/20
£175k - 2020/21
Available to each parent so 2 x £100k reduced
The RNRB will be reduced £2 for £1 on a persons ESTATE over £2m.
Both parents get a £325k NRB
Name 6 Exempt transfers for IHT purposes?
£250 to as many people as you like
£3000 backdated 1 year £6000 total
Regular gifts out of income which doesn’t diminish standard of living.
Gifts on marriage Parents £5k, Grandparents £2.5k and anyone £1k.
Interspouse transfers
Charitable gifts and political party gifts.
(loss to the estate principle - 2 vases worth more than one)
What is the CGT calculation.
- Same day
- 30 days following a sale to prevent bed and breakfasting utilising allowance.
- Pooled amount.
Selling before end of tax year and buying back straight away to utilise CGT allowance now not possible for 30 days after sale.
Bed and ISA is however allowed to utilise your ISA allowance.
What is the difference between business rollover relief and reinvestment relief.
BRR - gain on disposal of an asset is deducted from the base cost of a new qualifying asset it only becomes chargeable on disposal of second asset. Assets must be bought within 3 years.
- Reinvestment releif means CGT is deferred if buying new shares in another EIS and is payable when sale of the second EIS is made. (no deduction)
What is the ISA help to buy and LISA contributions?
You can mix and match however only £4000 can go into the LISA eligible for the 25% top up. £20,000 in total. £200 a month plus £1000 first year bonus for a help to buy. Only the bonus from one of the Lisa or HTB can be used for a first home. Transfers into a LISA are allowed to utilise better bonus option. NOT backdatable. 18 - 40 open 50 - save 60 - access
How are Single Premium Lift Assurance bonds taxed?
Onshore bonds - Net of 20% tax
Offshore bonds - No tax taken so HRT to pay 45%
Gain of the bond plus withdrawals divided by the number of FULL years held.
You would tax Interest at 20% for a HRT payer and 25% for an ART as the 20% has already been taken MULTIPLIED by the number of years.
What is a structured product?
Pre-packaged products created by combining an underlieing asset such as bonds, shares, indices, currencies and commodities with derivatives. Have unique risk return and cost savings advantages.
Listed SPs are usually listed as an instrument such as a zero coupon bond listed held and settled in CREST.
Treated as derivatives by the FCA COB rules.
Origins from guaranteed bonds offered by life offices in the 70s.
Can allow for capital protection and accelerated returns with autocall options and reducing strikes.
Risks - credit risk - capital guarantees only as strong as the underlying provider. Lehman issued products 2008.
Liquidity and pricing risk.
Complex isntruments
Counterparty risk - mitigated by use of gilts and highly credit worthy issuers.
Not always covered by the FSCS.
What is a Single Premium Life assurance bond?
Protected 100% under the FSCS.
Often issued by insurers so good guaranteed.
Can be with profits or unitised to allow for smoothing of returns. Reversionary bonus annual and discretionary once added cannot be withdrawn.
5% annual withdrawals tax deferred.
Can be used as a tax planning tool for a eyar a HRT payer becomes a BRT payer.
Market Value reducers may be applied to discourage early encashment.
Guarateed growth bond -
What is auto-enrolement
A minimum contribution of 2.4% between £6,032 and £46,350 2018/19 which will slowly increase to 8%.
Employees will have an option to opt-out within one month of employment.
Workers and Employers as well as government tax releif will gross this up to 8% of a workers salary.
How are chattels taxed?
Collectibles over 50 years old will be subject to CGT.
Paintings, antiques, furniture.
Cars are exempt from CGT!
LIVEX is a wine exchange.
Only needs to be disclosed on the tax return if over £6000.
Maximum chargeable gain is the lower of the actual gain (over £6000) or 5/3 multiplied by the sale price minus £6000
Defined Benefit lump sums.
Can be accessed using a commutation factor at the expense of some of the income from the scheme. The higher the commutation factor the more accessible cash.
What are the key LTA limits? QNUPS and QROPS.
£1.03m after which 55% is taxable.
QNUPS -Qualifying Non-Uk Pension Scheme - No lifetime allowance limit for IHT purposes so popular with football players. and can serve an international retirement plan.
QROPS - For people planning to leave the UK multiple smaller pensions can be consolidated into a qualifying recognised overseas pension scheme that maintains the same HMRC rules.
Questions you should ask?
Personal - DOB, domicile, residency
Financial - Wills, Income, IPP, CIC, mortgage flexible or interest only? Pension contributions.
Objectives - Retirement planning, school fees
Risk - Attitude and understanding
Tax - Using ISA limits and pension contributions, SPLAB
Time horizon - Investment cycles
Ethics - SRI, Responsible investing.
What are the FCA 11 high level principles?
I See Many Fair Maidens at the 5C's Regatta Integrity Skill Care and Diligence Management and control Financial prudence Market conduct Customer interests Communications Conflict of interest Customers Relationships of trust Client Assets Relation with regulators
What are the COBS sourcebooks
ACTHON-CAT-COM - SUIT-APP-DEALING
COBS 2 - Act honestly fairly and professionally
COBS 3 - Categorisation
COBS 4 - Client communications
COBS 9 - Suitability
COBS 10 - Appropriateness
COBS 11 - Dealing and managing - best execution
What is the complaints handling process and when can the Financial Ombudsman be contacted?
Semi annual reports must be sent to the FCA stating complaints closed within 4 weeks, 4-8 weeks and 8 weks plus.
Non Mifid records must be kept 3 years and 5 years for mifid records.
Ombudsman contactable after 8 weeks or after a final response is issued.
Elegible complainants are private individuals, charities, trusts less thean £1m.
Non elegible = eligible counterparties
and professional customers.
Max award = £150k for ifnancial loss, suffering, dmage to reputation, stress and inconvenience.
What is the CISI Code of Conduct principles?
The Lord George principles
- Act honestly and fairly
- Integrity in fulfilling resposibility for finance indistry
- Observe applicable law
- Integrity in market dealing
- Mange conflicts of interest
- Attain a level of professional competence
- Decline acting in matters ypou are not competent
- Uphold highest personal and professional standards
What are the main issues SYSC need to cover?
The FCA expects senior managers to put in place effective controls:
Organisation - Clear appropriate reporting lines
Compliance - Responsibilities properly documented.
Risk assessment - If appropriate a separate risk assessment function should be established.
Management Info - Info supplied to the board
Audit - appropriate number of NEDs
Records - appropriate systems and controls to fulfil regulatory and statutory obligations.
Applying for authorisation to the FCA. What are the requirements?
A firm carrying out regulated activities must apply for authorisation.
Can take up to 6 months to confirm and an annual fee when applying.
Must have head office in the UK
Firms must be fit and proper
What is an approved person. What is replacing it?
The firm (principle) must ensure that the appointed representative (agent) complies with:
Fit and Proper test
Act with honesty and integrity and abide by the FCA principles.
The FCA will write to the person confirming part 4a permissions - authorisation
The rule for CF1 to CF30 will change to become the Senior Managers & certification Regime.
