IAD Questions - General 2

Question 1

What is the annual exemption applying to Lifetime Transfers?

Answer 1

£3,000 per tax year

Question 2

What is the small gifts exemption applying to Lifetime Transfers?

Answer 2

£250 per person

Question 3

What is the marriage exemption applying to Lifetime Transfers?

Answer 3

£5,000 per parent
£2,500 per grandparent
£1,000 per any other person

Question 4

What is the annual exemption for gifts to Charities, Political Parties & national benefit applying to Lifetime Transfers & on death?

Answer 4

Unlimited

Question 5

What is the purpose of Life Assured products?

Answer 5

A pay-out if one or more particular individuals (life assured) dies.

Question 6

What is the difference between single premium & regular premium Life Assurance products?

Answer 6

Single premium - policyholder pays a one-off premium

Regular premium - policyholder pays series of periodic premiums

Question 7

How much can be withdrawn yearly from a Life Assurance bond without paying tax?

Answer 7

5%

Question 8

Explain the Primary, Secondary and Tertiary sectors of the economy

Answer 8

Primary = Production of raw materials

Secondary = Manufacture/processing of raw materials into other goods

Tertiary = Distribution of goods & provision of services

Question 9

What income tax & CGT is due for a basic rate taxpayer re a Life Assurance Bond?

Answer 9

0% on income & CGT

The fund issuing the bond is already subject to tax at basic rate of 20% & same with CGT.

Question 10

What fees are due on purchases of shares, assuming commission, and in order?

Answer 10

Purchase Cost
+ Stamp Duty
+ Commission
+ PTM levy

Question 11

What fees are due on sales of shares, assuming commission, and in order?

Answer 11

Sale price
- Commission
- PTM levy

Question 12

How much is the PTM levy and when is it due on sales and purchases?

Answer 12

£1

On sales & purchases over £10k in value

Question 13

What does R-squared measure?

Answer 13

The degree of correlation between a fund and a benchmark

Question 14

What does a low r-squared indicate?

Answer 14

Little of the funds returns can be explained by changes in the benchmark - a less reliable Beta

Question 15

What level of risk does a low P/E ratio indicate?

Answer 15

High risk

Question 16

If inflation rises, what effect does it have on borrowers?

Answer 16

Borrowers gain at the expense of lenders. Borrowed money is worth less.

Question 17

What CGT arises from holdings in an OEIC?

Answer 17

0

Funds grow free from CGT within an OEIC. Only when a disposal is made does this trigger a CGT liability.

Question 18

What effect would a decrease in interest rates have on property?

Answer 18

Increases the ability to borrow so would increase the demand for property - pushing property prices up.

Question 19

What IHT is due when transferring an estate to a spouse?

Answer 19

0% - transfers to spouses are exempt

Question 20

What are the 3 most commons passive methods for tracking a benchmark?

Answer 20

Full replication
Stratified sampling
Optimisation

Question 21

What risk does Immunisation protect against?

Answer 21

Interest rate risk

Question 22

How will an increase in money supply affect interest rates?

Answer 22

Decrease interest rates

Question 23

What are Smart Beta funds?

Answer 23

Combination of active & passive strategy

They create their own benchmark and then tracks this personalised index

Question 24

What are the 3 forms of Efficient Markets Hypothesis?

Answer 24

Weak = Market price reflects all information implied in historic prices (“go active”)

Semi-strong = Market reflects all publicly available information

Strong = Share currently takes into account all public & private info (“go passive”)

Question 25

What is the Capitalisation Rate?

Answer 25

Ratio used to estimate the value of income-producing properties

Question 26

What is the Capitalisation Rate ratio?

Answer 26

Net operating income / Sales Price (value as %)

Question 27

What does the Current account measure?

Answer 27

Flows in relation to trade in goods and services.

Question 28

What does the Capital account measure?

Answer 28

Ie. Financial account. Measure ls inward investment, foreign investment, foreign currency borrowing.

Question 29

Future Value of annuity

(Eg. £100 invested at start of years, 5 years, 6% compounded annually)

Answer 29

Value x [ (1+rate^periods -1) / rate ] x 1+rate

Question 30

What is residency?

Answer 30

Where you are physically present

Question 31

What is domicile?

Answer 31

Where is permanent home

Question 32

What is Remittance Basis

Answer 32

For individuals that are UK resident but not UK domiciled.

They can elect for overseas income & gains to be taxed on remittance basis - annual tax charge.

Question 33

Tax implications of UK resident & domiciled individuals in other countries

Answer 33

They must pay UK tax on earnings and investment income (and CGT) no matter where the income originated

Question 34

What is a multi-factor model?

Answer 34

Used in the analysis of securities when constructing a portfolio

Question 35

What are the 3 categories of Multi-factor models?

Answer 35

Macroeconomic models
Fundamental models
Statistical models

Question 36

What does a high cap rate indicate about a property?

Answer 36

Higher risk, higher cashflows, lower the valuation