Factors Questions Flashcards
Cash Flow -
State six factors that should be taken into account when carrying out a projected cash flow analysis
- Income/ expenditure requirements.
- Any future capital expenditure/future gifts planned.
- Any other expected inheritances/downsizing.
- Family history of longevity/health.
- Importance of IHT planning/utilising other inv. before pension/generational planning from pension.
- Assumptions to be used, e.g. inflation, inv. growth, ongoing charges.
Encash Inv. Bond or UT -
Outline the factors that you would take into account when recommending whether the funds required should be taken from the unit trust portfolio or by withdrawing funds from the investment bond
Risk / reward
- His capacity for loss is low.
- The unit trusts appear to be performing better than the Inv. bond but are more volatile and are likely to be subject to market timing risk.
- The Inv. bond is likely to be more in line with his ATR.
Income
- The Inv. bond only has three years until the full capital amount has been withdrawn.
- However, the income from the investment bond is certain.
- The UT has no end date for income, but the income could increase or reduce.
Tax
- The income from the UT will be tax-free as it is within his divi. allowance.
- The gain on the UT is within his annual CGT exemption.
- £** can be taken from the Inv. bond without an immediately liability to IT and the gain on the Inv. bond will not push him into the HRT bracket.
Tax Efficient Income -
Outline the factors you would take into account in order for them to achieve their objective of providing tax-efficient income in retirement.
- Attitude to risk – will this change in retirement?
- inherited portfolio - in line with attitude to risk
- capacity for loss
- And this may not be producing the level of income required
- Planned capital expenditure
- Their willingness to change ownership of the investments for tax efficiency
- Husband tax rate now and in retirement.
- Loss of PA – any chance of reclaiming?
- Wife – tax rate now and in retirement?
- Available allowances – ISA/Dividend Allowance/Personal Savings Allowance/Starting rate band for Lizzie/CGT exemptions to generate tax free/tax efficient income
- Are current assets in income producing funds?
- Assets within ISAs produce tax free income
- VCT or EIS? tax-free efficiency comment and is this in line with ATR
- The level of required income, both now and in the future
- The options and level of benefits available via company pension schemes
- The age gap between retirement and their respective State Pension ages
Selling Home and moving in with children -
personal and financial factors selling her house and moving into children’s home.
Personal factors
- Provide certainty of her care/reassurance that help is on hand if needed.
- If granny flat - retain some independence flat is separate from daughter’s.
- She will lose some independence as she no longer owns her own property. Or if lives in daughter’s home.
- Sold property so it is irreversible if it doesn’t work out/may be difficult to revert to living in her own property again if it doesn’t work out.
- The move may place a strain on the relationship with daughter and her family.
- Emotional upset of selling her home.
Financial factors
- Loss of future growth in property prices.
- Proceeds of sale are/aren’t required to provide income
- If gifts house sale proceeds gifts they will be outside of her estate after seven years
- It will save the ongoing maintenance and running costs of her current property.
- Property proceeds subject to means testing in respect of long term care.
IHT Protection -
Factors to consider if IHT protection sufficient
RNRB increases
PETs dropping off
Future gifts drop off in 7 years
Care cost deplete estate
Estate increases - Windfalls, performance
Existing plan - allows increases?
Cost/Affordability/Willingness to self manage
Advice on Investment -
Identify the factors you would take into account before offering any advice
• Objectives – income/growth/both • Willingness to get involved with the management of their capital • Term of the investment • Health and life expectancy/need for care • Emergency fund • Attitude to risk • Capacity for loss - can this increase ATR? • Suitability of existing invest. to meet objectives • Taxation (wrappers and allowances) • Ethical requirements • Next Generation, BR & Trusts? • Investment Experience • Corridors 70 to 79 65-80% 80 to 84 50-75% 85 to 89 35-60% 90+ 20-40%
Replacement -
Factors to consider for encashing and re-investing
Selling Loss/Gain made? Other gains/losses in 18/19 Charges comparison Performance against bench. Income produced
Re-investment Cap. for loss Portfolio in line with ATR? Any SJP plans held already - happy with IMA Income paid lower? CYC - 1% Advice Costs
Investment Mix changes -
Outline the factors that you would take into account before recommending any changes to the existing investment mix.
- Attitude to risk and capacity for loss
- Any ethical preferences
- She has over £300k held in equity ISAs/she has experience of investing
- Ad hoc lump sums needed
- Income pattern required
- Ensure sufficient is held in cash to cover short term income requirements
- She would like the children to inherit on her death and so a longer investment term can be used
- A proportion of the funds should be invested for growth
- She has a large percentage of her assets already held in property
- Investment outlook/Brexit
Buy to Let in Retirement -
Explain the factors that you would take into account prior to making a recommendation as to which of the three options available to her should be used:
- Use Deposit A/C + Borrow
- UFPLS + Borrow
- FAD + Borrow
Savings plus B2L mortgage
1. Emergency funds will be significantly reduced.
UFPLS to cover purchase price
- HRT payer may lose PA if UFPLS taken and part may subject to IT at 45%.
- MPAA will be triggered - may subject to an AA tax charge.
- Significant amount of capital will be tied up in a single investment.
PCLS of £100k plus B2L mortgage
4. MPAA will not be triggered – no income taken.
General points – using the pension
- Pension funds used now form part of her estate for IHT purposes.
- Pension funds used now form part of her estate for LTC assessment.
- Reduces level of income/flexibility available from the pension funds in retirement.
General points – using a B2L mortgage
- If PCLS/deposit used along with B2L mortgage, then no Income Tax charge will arise.
- Gearing which will magnify gains/losses.
- Tax relief on mortgage interest is being reduced to basic rate relief only.
- Interest rate chargeable/interest rates are likely to increase in the future/charges for B2L mortgage.
General points
12. Charges incurred by taking UFPLS/accessing PCLS/accessing bank account funds/CGT or penalties on encashment of UT.
