Exam October 2017 - Nigel & Mona Flashcards
Explain briefly to Nigel the benefits of being a member of his employer’s (SAYE) Sharesave scheme.
Benefits:
• Tax free interest on savings account.
• Buy shares at possible discounted price.
• No tax on difference in share price and price paid.
• Possible to transfer shares into pension/ISA.
• No obligation to purchase shares (at the end of the term).
Explain to Mona five advantages and five disadvantages of using a flexi-access drawdown arrangement rather than a lifetime annuity when she retires later this year.
Advantages:
• Flexible income.
• Tax efficient income.
• Potential for growth.
• Better death benefits/more flexible death benefits/IHT efficient.
• Can annuitise later/annuity rates may improve.
Disadvantages:
• Investment risk.
• More complex/requires ongoing advice.
• Greater costs.
• Money purchase annual allowance (MPAA) maybe triggered/£4k.
• Income not guaranteed/funds may be frittered.
Nigel is interested in executing a deed of variation in respect of the legacy from his aunt.
Describe how a deed of variation may be established.
- Must be in writing/legal document/signed.
- Deed must state what is being varied in Will/intestacy.
- Must state who is benefitting from variation.
- All affected beneficiaries must agree.
- All beneficiaries must be 18/sound mind/have legal capacity.
- Treated as taking place on donor’s death.
- Must be executed within two years of death.
- The deed should not be for consideration or money or money’s worth.
- Should state that variation has effect for Capital Gains Tax/Inheritance Tax.
- Should contain an exemption certificate for variations of stocks, shares and securities.
Recommend the actions that Nigel and Mona could take to reduce the potential Inheritance Tax liability that would arise on their deaths.
- £3,000 annual allowance/small gifts/gifts out of normal expenditure.
- Gifts to charity/political party.
- Execute a deed of variation.
- Make use of tenancy in common/transfer home to joint names/make use of MRNRB.
- Nigel to make use of (or arrange to make use of) late wife’s NRB.
- Potentially exempt transfers (PET)/Chargeable Lifetime Transfer (CLT).
- Whole of Life Joint Life Last Survivor in trust.
- Place bond in trust.
- Nominations on pension/pension contribution.
- Enterprise Investment Scheme (EIS)/ Business Property Relief (BPR) qualifying assets/other schemes
- Discounted Gift Trust/gift and loan trust.
- Wills.
Nigel and Mona plan to move permanently to their holiday home, and let out their current home, in 5 years’ time.
State the factors that Nigel and Mona should be aware of, in respect of private residence relief.
- Must make an election of main residence within two years of moving.
- Make election jointly.
- If don’t make election – Her Majesty’s Revenue & Customs (HMRC) makes election.
- Capital Gains Tax not payable on main residence;
- for 18 months after moving out.
- Property must be suitable for PRR/less than 0.5 hectares /5000sqm/no business use.
- To qualify, must reside/have resided in property.
Nigel and Mona are disappointed with the performance of their with-profits bond.
State the information a financial adviser would require, to advise Nigel and Mona on whether to surrender or retain this bond.
- Amount of investment/top up investment.
- Date of investment.
- Withdrawals made.
- Underlying investments of fund/asset allocation.
- Reversionary bonuses/underlying performance.
- Terminal bonus.
- Market Value Reduction (MVR)/penalties/surrender value.
- Charges.
- Financial strength.
- Guaranteed bonuses.
Nigel and Mona are considering Agnes’s long-term care costs.
Explain briefly, the potential State benefits that may be available to assist with these costs.
- Attendance allowance.
- If in need of care night/or night and day.
- Higher rate may be available dependant on care needs.
- Registered Nursing Care contribution.
- Paid for nursing direct to home.
- Registered Nursing Care contribution/attendance allowance - tax free/not means tested.
Recommend and justify the actions that Nigel and Mona could take to improve the tax efficiency of their savings and investments.
- Nigel is ART and Mona basic rate tax payer.
- Transfer bank savings to Mona.
- Saves tax on interest.
- Maximise ISAs.
- Tax efficient.
- Utilise premium bonds.
- Make pension contributions/Venture Capital Trust (VCT)/Enterprise Investment Scheme (EIS).
- Tax relief/pension commencement lump sum (PCLS).
- Assign bond to Mona.
- Saves tax of 25% on encashment.
- Transfer shares to Mona/interspousal transfer.
- Leaving sufficient for Nigel to use Dividend allowance/CGT allowance.
- Saves dividend tax of 30.6%/CGT of 10%.
- Use CGT allowance.
Identify seven issues that a financial adviser should discuss with Nigel and Mona at their next annual review meeting.
- Personal circumstances.
- Fund valuations/Performance.
- Rebalance/Attitude to risk.
- Income change/affordability/tax status/New funds to invest.
- New products/legislation/taxation.
- Use of tax allowances/gifting for Inheritance Tax
- Change in economic circumstances/market/political.