IFTS Drill Down

Question 1

Which of the following do not pay fixed interest?

A) Certficates of Deposit
B) Corporate Bonds
C) Gilts
D) Treasury Bills

Answer 1

D) Treasury Bills

Question 2

Who issues Treasury Bills?

A) BoE
B) UK DMO
C) UK Corporates

Answer 2

B) UK DMO

Question 3

Treasury Bills are a form of which type of debt?

A) Short-term
B) Medium-term
C) Long-term

Answer 3

A) Short-term

Treasury bills are short term, normally being issued for a period of 91 days, whereas gilts can be long term or even undated;

Question 4

In relation to a personal pension, an uncrystallised fund means:

A) the plan holder has withdrawn all the funds
B) The plan holder has withdrawn some of the funds and incurred a tax liability
C) no withdrawals have been made from the pension plan
D) only the pension commencement lump sum has been withdrawn

Answer 4

C) no withdrawals have been made from the pension plan

Question 5

When an Uncrystallisd funds pension lump sum (UFPLS) is taken it means:

1) The pension fund is not moved into a drawdown account
2) 25% of each payment is tax-free with the balance subject to income tax
3) the Money Purchase Annual Allowance (MPAA) is triggerred

True or false

Answer 5

True

Question 6

Jenny has taken advantage of the HMRC Marriage Allowance and had an element of her personal tax allowance transferred to her husband John.

This must mean that:
A) Jenny earns less than her personal allowance and does not pay income tax.
B) Jenny is an additional-rate taxpayer
C) John is a higher-rate taxpayer
D) John was registered as blind in the current tax year and earns less than the personal allowance

Answer 6

A) Jenny earns less than her personal allowance and does not pay income tax.

Marriage allowance – it is possible for an individual to transfer part of their basic personal allowance to their spouse or civil partner, providing the transferor is not liable to income tax at all and the recipient is not liable to income tax at the higher or additional rate.

Question 7

A person can take a married couple’s allowance if:

A) both partners were born before 06 Apr 1935
B) one partner was born before 06 Apr 1935
C) both partners were born after 06 Apr 1935
D) one partner was born after 06 Apr 1935

Answer 7

B) one partner was born before 06 Apr 1935

The allowance is provided as tax relief and is limited to a percentage of the applicable allowance amount.

Question 8

A blind person’s allowance can be transferred to the spouse or civil partner.

True or false

Answer 8

True if it cannot be used by the individual

Question 9

On a with-profits policy, what is a reversionary bonus?

A) A payment made on maturity, reflecting the investment performance over the term of the policy.
B) A payment that is declared regularly and, once allocated to the policy, cannot be removed.
C) A payment that is pre-set at an anticipated bonus rate, but is reduced if investment performance is less than anticipated
D) An irregular payment, made at the discretion of the insurance company from orphan funds

Answer 9

B) A payment that is declared regularly and, once allocated to the policy, cannot be removed.

Question 10

What type of full with profits endowment bonus is best described by:

“bonuses that may be added when a death or maturity claim becomes payable”

A) Reversionary bonus
B) Terminal bonus

Answer 10

B) Terminal bonus

Question 11

A useful tool to investigate if an investment opportunity is a scam or not, called ScamSmart, is available from:

A) The FCA
B) MoneyHelper
C) The PRA
D) The National Crime Agency

Answer 11

A) The FCA

Question 12

If Chris and Kim opt for a joint repayment mortgage, the most suitable way to ensure that the loan will be repaid if either of them dies is by:

A) taking out an income protection insurance policy
B) investing in an endowment assurance policy
C) taking out a critical illness policy
D) taking out a mortgage protection assurance policy

Answer 12

D) taking out a mortgage protection assurance policy

Question 13

Michael requires a life policy to pay out a guaranteed fixed cash value at maturity and
needs the level of life cover and premiums to remain fixed throughout the term.

Which of the following types of policy would be most suitable?

A) Low cost with-profits endowment assurance
B) Non-profit endowment assurance
C) Unit-linked endowment assurance
D) Universal whole-of-life assurance

Answer 13

B) Non-profit endowment assurance

Question 14

Fiona sold an investment property and realised a gain of £120,000. To reduce her
taxable gain, which of the following items cannot be deducted from the gain?

A) The original cost of the property
B) The cost of an extension to the property
C) The cost of replacing broken windows
D) the legal costs incurred when selling the property

Answer 14

C) The cost of replacing broken windows

Up until 2016 landlords were able to claim an annual wear-and-tear allowance on the cost of furnishings of the property. This has been replaced by a furniture replacement relief that only allows the actual cost of replacing furnishings to be offset against profits.

Question 15

A limited liability partnership will pay which type of tax on their profits?

A) Capital gains tax
B) Income Tax
C) Corporation Tax
D) VAT

Answer 15

B) Income Tax

Question 16

A business partnership will pay which type of tax on their profits?

A) Capital gains tax
B) Income Tax
C) Corporation Tax
D) VAT

Answer 16

B) Income Tax

Question 17

A self-employed person will pay which type of tax on their profits?

A) Capital gains tax
B) Income Tax
C) Corporation Tax
D) VAT

Answer 17

B) Income Tax

Question 18

A limited company will pay which type of tax on their profits?

A) Capital gains tax
B) Income Tax
C) Corporation Tax
D) VAT

Answer 18

C) Corporation Tax

Question 19

A non-resident might be able to claim private residence relief if they live in the property for a minimum of how many days?

A) 90 days
B) 180 days
C) 183 days

Answer 19

A) 90 days

Question 20

Which of the following would not count as a private residence for private residence relief?

A) Houseboat
B) Fixed Caravan
C) Flat
D) House that the resident is there for 80 days of the year

Answer 20

D) House that the resident is there for 80 days of the year - doesn’t count

Question 21

Fred made a ‘chargeable lifetime transfer’ of £1m. When will inheritance tax always be payable?

A) Following Fred’s death
B) Immediately
C) Six years after the date of the gift
D) Seven years after the date of the gift

Answer 21

B) Immediately

Always immediately.

Question 22

Peter is going to work abroad for a period of time, so he has appointed Angela, his sister to act as agent with regard to his portfolio of buy to let properties. Peter explained to Angela that he wanted her to collect rent and ensure that the properties are kept in good order. While Peter is way, Angela decides to evict some troublesome tenants and re-let the relevant property to new tenants.

In respect of Angela’s actions, this is an example of:
A) Acting as principal
B) Acting with apparent authority
C) Ratification
D) Utmost good faith

Answer 22

B) Acting with apparent authority

When an agent acts outside of their actual authority, they act within what is known as apparent authority.

Question 23

The insurance principle where all material facts had to be disclosed by both parties was carried out under the principles of:

A) Remediation
B) Injunction
C) Ratification
D) Utmost good faith

Answer 23

D) Utmost good faith

Question 24

Which of the following NS&I products are TAX free?

A) Direct Saver
B) Investment Account
C) Income Bonds
D) Direct ISA
E) Premium Bonds
F) Junior ISA
G) Green Savings Bonds
H) Guaranteed Income Bonds
J) Guaranteed Growth Bonds

Answer 24

D) Direct ISA
E) Premium Bonds
F) Junior ISA

Question 25

What taxes are applicable to Gilts?

A) CGT
B) Income Tax
C) Corporation Tax

Answer 25

B) Income Tax

Any capital gains made o nthe sale or redemption of gilts are entirely free from CGT

Question 26

It is possible to elect for net payment of interest for GILTs. True or false

Answer 26

True

Question 27

Which of the following items are exempt from Value Added Tax (VAT)?

A) Accountant’s fees
B) Heating costs
C) Insurance premiums
D) Legal costs

Answer 27

C) Insurance premiums

Domestic heating is charged at a reduced rate

The supply of financial advice is not exempt and advisors who charge a fee for their service are subject to VAT in the same way as solicitors or accounts.

Zero-rated items icnlude:
- Food
- Books
- Children’s clothes
- Domestic water supply

Question 28

Which of the following items are exempt from Value Added Tax (VAT)?

A) Accountant’s fees
B) Heating costs
C) Insurance premiums
D) Legal costs

Answer 28

C) Insurance premiums

Domestic heating is charged at a reduced rate

The supply of financial advice is not exempt and advisors who charge a fee for their service are subject to VAT in the same way as solicitors or accounts.

Zero-rated items icnlude:
- Food
- Books
- Children’s clothes
- Domestic water supply

Question 29

Which of the following pieces of information does not need to be included when presenting a product recommendation to a client?

A) The benefits the client will enjoy
B) the client needs that the product will address
C) the other products considered but discounted
D) The risks inherent to the product

Answer 29

C) The Other products considered but discounted - not needed

Explanations that should always be included are:
- the purpose of the product and the client’s needs that the product will
address;
- the benefits that the client will enjoy;
- the risks and limitations inherent in the product;
- any options that exist within the product that may be appropriate to the
client;
- a summary of reasons why the product is being recommended.

Question 30

Diane has been told that she must pay a certain class of National Insurance typically on a twice-yearly basis. This confirms that she is:

A) earnings more than the upper earnings limit
B) on maternity leave
C) self-employed
D) temporarily working abroad

Answer 30

C) self-employed

Class 4 NICs are half-yearly

Question 31

Greg decided to invest in cumulative preference shares as he:

A) intended to convert to ordinary shares
B) wanted guaranteed seucrity of capital
C) wanted some certainly regarding future dividend payment
D) was eager to benefit from capital growth

Answer 31

C) wanted some certainly regarding future dividend payment

They differ from ordinary shares in that they generally pay at a fixed rate and are paid out ahead of ordinary shares.

Cumulative preference shares, which means that if dividends are not paid, entitlement to dividends is accumulated until such a time as they can be paid

Question 32

Nick and Lynne are keen to take advantage of a better deal and remortgage with a new lender.
However, their existing lender has informed them that if they remortgage, they will have to pay an additional six months’ interest as an early repayment charge. The most likely reason for this is that:

A) their lender is reclaiming the cost of the valuation fee
B) they have a fixed-rate mortgage
C) they have a standard variable-rate mortgage
D) they have arrears on their mortgage account

Answer 32

B) they have a fixed-rate mortgage

Question 33

Three of the following types of charges may be applied to an investment held with an open-ended investment company. Which is the exception?

A) A dilution levy
B) Annual management charge
C) Initial or buying charge
D) Policy Fee

Answer 33

D) Policy Fee

A dilution levy is added to the unit price on purchase of shares or deducted from the price on sale of shares in situations where there are large flows of funds into or out of the OEIC.

Question 34

Sophia purchased an antique for £20,000 and was, additionally, charged a dealer’s fee of £2,000. Having noticed damage on the antique, Sophie paid £1,800 as maintenance to repair some damage. She also incurred improvement costs of £3,000. How much of these costs could legitimately be offset against any capital gain upon disposal?

A) £1,800
B) £3,000
C) £5,000
D) £6,800

Answer 34

C) £5,000

CGT deductions:
- The costs of purchase can be deducted from sale price
- The cost of IMPROVEMENTS but not the cost of maintenance or repair
- Gains prior to 1982 are not taxed

Question 35

Capital gains tax is payable on a gain made on disposal of which class of asset?

A) Business Property
B) Main private residence
C) Winnings from NS&I Premium Bonds
D) Gains on life assurance policies when sold by the original owner

Answer 35

A) Business Property

Question 36

Capital gains tax is payable on a gain made on disposal of which class of asset?

A) Business Property
B) Main private residence
C) Winnings from NS&I Premium Bonds
D) Gains on life assurance policies when sold by the original owner

Answer 36

A) Business Property

Question 37

Which of the following statements regarding investments by individual UK residents into local authority bonds is false?

A) They are a form of unsecured lending
B) They offer a fixed rate of interest
C) They pay interest at half-yearly intervals
D) They are not negotiable

Answer 37

A) They are a form of unsecured lending

Question 38

Maurice has a convertible level term assurance policy and is about to convert the policy to a new policy with the same sum assured. Which of the following is true?

A) No investment content can be included in the new policy.
B) No medical underwriting is necessary at the point of conversion.
C) The new policy term must be the same as on his existing policy.
D) The regular premium he is currently paying will not change.

Answer 38

B) No medical underwriting is necessary at the point of conversion.

Question 39

Which of the following endowment policies usually carries the highest level of
investment risk?

A) Non-profit.
B) Unit-linked.
C) Unitised with-profits.
D) With-profits.

Answer 39

B) Unit-linked.

Question 40

Which of the following endowment policies usually carries the highest level of
investment risk?

A) Non-profit.
B) Unit-linked.
C) Unitised with-profits.
D) With-profits.

Answer 40

B) Unit-linked.

Question 41

The holder of a warrant has the right to buy shares:

A) at a fixed price at a date of the warrant holder’s choosing.
B) at a future date at a discounted rate.
C) at a future date at a fixed price.
D) at a future date at a price below the then current market price.

Answer 41

C) at a future date at a fixed price.

Question 42

Which of the following is least likely to be available under a universal whole-of-life
assurance policy?

A) Hospital benefit.
B) Income protection insurance.
C) Total and permanent disability cover.
D) Unemployment cover

Answer 42

D) Unemployment cover

Question 43

John is completing the proposal form for the level term assurance he is hoping to take out. Which of the following describes how he must answer the questions?

1) By following the principle of ‘caveat emptor’.
2) By following the principle of ‘utmost good faith’.
C) By taking reasonable care not to make a misrepresentation.
D) By volunteering all material facts.

Answer 43

Caveat emptor
CONTEXT: Binding contracts, all on the buyer ‘let the buyer be wear’

Utmost good faith, exception to caveat emptor
CONTEXT: Insurance companies and proposing material facts

Question 44

Under a unit trust, what does the cancellation price represent?

A) The maximum offer price at which a full encashment of units may be made.
B) The minimum bid price that investors will receive when they cash in their units.
C) The price applicable to investors who cancel their investment during the cooling-off period.
D)The price at which the manager will buy back units if underlying assets do not have to be traded.

Answer 44

B) The minimum bid price that investors will receive when they cash in their units.

Question 45

In respect of inheritance tax, what is the maximum gift that can be given to a grandchild solely in relation to marriage, without them incurring any tax liability either now or in the future?

1) £1,000.
2) £2,500.
3) £3,000.
4) £5,000.

Answer 45

2) £2,500.

2,500 from a set of grandparents

Question 46

Donald, a higher-rate taxpayer, has a 20-year endowment policy with a sum assured of £20,000. Which of the following features is likely to make the proceeds subject to tax at maturity?

A) The first year’s premium was £125 and the tenth year’s premium was £275.
B) The first year’s premium was £150 and the tenth year’s premium was £290.
C) The premiums ceased after 17 years.
D) The total premiums payable amounted to £22,500.

Answer 46

A) The first year’s premium was £125 and the tenth year’s premium was £275.

‘Qualifying policies’ have no tax liability on endowment proceeds on death or maturity.

To qualify:
1) Premiums must be paid annually, quarterly or monthly for at least 10 years
2) Discontinuing premiums - if premiums cease within 10 years the policy becomes non qualifying
3) Premiums in any one year must not exceed twice the premiums in any other year or one-eight of the total premiums payable
4) Sum payable on death must be equal to 75% of total premiums payable