Important Info Flashcards
CGT annual allowance
£6k
Chashflow modelling
Assessing current and forecasted wealth to build a picture of their finances
- What couple want and need in terms of income and capital e.g. what are essential living costs, what gifts would like to give to children, etc.
- What will they have e.g. PCLS, rental income, etc.
- Agree on assumptions
- Plays out scenarios e.g. what if annuity rates fall, gilt yields fall, etc.
- Compare the 2 identify shortfalls and what can be done
Unit trust OEIC & investment trust tax treatment
Usual dividend rules, CGT and income tax after PSA
Savings income tax allowances
- how is interest paid
- how are offshore savings taxed
- Tax rate:
0% - Upto £5k & £1k allowance
20% - BRT - £1k allowance
40% - HRT - £500 allowance
45% - ART - £0 allowance - interest paid gross
- Offshore savings are not taxed by UK
NS&I tax free products with anogram
PICK
PICK
Premium bonds
ISA
Certificates
Kids bonds
Types of trust
-Bare
- Interest in possession
- discretionary
- disabled
Bare trust - Has immediate right to assets income & capital and beneficiary cannot be changed
Interest in possession trust - immediate right to assets income but not capital
Discretionary trust - trustee has full discretion on how to use the trust as have number of beneficiaries
Disabled trust - trust for a vulnerable person
Discretionary trust tax rules
- IT
- CGT
- IHT
IT
- trustees responsible for declaring and paying income tax unless paid directly to beneficiary
- Upto £1k:
20% - everything except dividends
8.75% for dividends - Above £1k:
45% - everything except dividends
39.35% for dividends - expenses can be offset in below order:
1. UK div.
2. foreign div.
3. Savings income
4. All other income - Once tax paid receive 45% tax credit then beneficiary can reclaim tax against 45% tax
- No allowances throughout allowable
CGT
- Liable to 20% CGT (8% surcharge for resi. property)
- Exemption amount of £6,150. Which reduces with the no. of non-bare trusts from settlor
IHT
- Treated as a chargeable lifetime transfer, which is paid on transfer
- Pay IHT on death rate, if settlor does within 7yrs but has taper relief
reduces with the no. of non-bare trusts from settlor
IHT
- Treated as a chargeable lifetime transfer, which is paid on transfer
- Pay IHT on death rate, if settlor does within 7yrs but has taper relief
- Anniversary charges at rate of 6% on amount over NRB
Discounted gift trust
Arrangement to put a lump sum into a trust for beneficiaries which is then invested, whilst settlor(s) keeps right to receive regular payments.
The gift is split in to two parts:
- The lump sum needed for the income.
the balance of the gift.
- The lump sum needed for the income is ‘discounted’, which simply means it immediately falls outside David and Ruby’s estate.
CLT IHT only on total gift - income lump sum
Loan/gift trust
settlor(s) would set up a *discretionary trust
They would then lend the trust an amount of capital, interest-free
The funds loaned are then invested into an investment bond.
The loan would be repayable on demand
The settlor(s) could ask for repayment at any time, so would not lose access to their monies
Can have 5% of loan amount back each year tax free
Lasting power of attorney
A donor is able to appoint someone to make their decisions when they no longer wish to for health and/or finance
Max. Annual pension contributions
Max. carry forward each year?
How many years can you carry forward your annual allowance and what amount? What order would the annual allowance be used?
£60k or annual salary
Can carry forward max. of £40per yr
3 previous tax years in total carrying £40k for each yr (current and 3 previous)
Current - Then 3yrs ago - Then 2yrs ago - Then 1yr ago
Annual gift exemption
- annual exemption - transfers upto £3k per tax yr and can carry forward 1yr (so £6k max)
Marraige tax allowance purpose and 4 rules
Can transfer fixed amount of personal allowance to spouse or civil partner
Rules:
- neither can be above basic rate band
- amount transferable is fixed at £252
-cannot take with married couples allowance
- can be back dates upto 4yrs and once taken will auto continue in future
Bereavement support allowance (with and without a dependent)
With - £3,500 lump sum then £350 monthly for 18 months
Without - £2,500 lump sum then £100 monthly for 18 months
SSP
Must be sick for 4 days in a row, payable for 28 weeks (unless have shielding letter)
ESA
money for people who have limited capability for work because of their sickness or disability but do not get Statutory Sick Pay.
Type of benefit:
Income-related ESA is means tested
Contributory ESA is non means tested
Taxable:
Income-related ESA is not taxable
Contributory ESA is taxable
Guardianship order
A court appointment that authorises someone to make decisions and take action on behalf of an adult who has lost capacity
Advisory fund management
Discretionary fund management
Advisory:
- The adviser makes recommendations based on the client’s circumstances needs and objectives, and attitude to risk.
- If any changes to the portfolio are appropriate, such as a change in asset allocation or a purchase / sale of an asset, the adviser must obtain express permission from the client before making the changes.
Discretionary:
- The adviser makes recommendations based on the client’s circumstances needs and objectives, and attitude to risk.
- The client and adviser agree boundaries for the types of changes that can be made without express permission for each specific change.
Types of annuities and their tax implications:
- purchased life annuity
- purchased annuities certain
- pension annuity
- deferred annuity
- annuities for beneficiaries
- immediate needs annuity
- purchased life annuity - paid from lump sum til death and pays capital and interest element - taxed only on interest received and can use PSA to reduce tax liability
- purchased annuities certain - paid for a set term regardless of death - same tax as PLA (above)
- pension annuity - paid as a result of a pension scheme - taxable in full as earned income
- deferred annuity - capital is handed over but annuity does not begin for set period - same tax as PLA (above)
- annuities for beneficiaries - paid as per trust or will - taxable in full as savings income
- immediate needs annuity - often used to fund care home fees and pay larger annuity payments as shorter life expectancy - if paid directly to care home then no tax liability
Enhanced annuity
Impaired annuity
Enhanced
- common and for most people
- improved rates for adverse health and lifestyle choices
Impaired
- for more serious situations and for people with short life expectancies
- improved rates with certain medical conditions diagnosed
Comment on… questions
What you see
What you don’t see
Impact
CS 1 missed answers
- costs of plan
- Pension nomination form
- pension freedoms available
- inheritance to be received
- view on inflation
- defer SP
- expected rental income
- tax status
- low ATR
- Ruby may need health care
- peace of mind
- escalation
- agree emergency funds
- move part of NS&I into R name for PA
- reduce value of estate within IHT limit
- premium bonds
- state of economy
- less admin.
CS 2 missed answers
- expected non-dependent age
- costs
- willingness to use ISA as repayment vehicle
- premium bonds
- receiving child benefit
- estate not currently about IHT NRB
- Chloe’s expected income
- wills
- split of gift from parents
- gift intervivos cover
- limited number of LISA providers
- view on market
- view on inflation
- inheritance
- job security
- mortgage due to end before SPA
- on death ISA allowance can be carried over to spouse tax free
- if use £100k to repay mortgage this will be illiquid & lead to cheaper protection
- nomination form completed
- made guardian choices
- desire to rely on gov. benefits
- current debts
- Chloe’s plan to RTW
- policies can be cancelled at any time
- policies can be placed in trust
- policies can have guaranteed premiums
- SSP has no means testing
- bereavement support is paid tax free and claims must be made within 3 months
- wills must have an intention to dispose of property
- advisor gives FCA & FOS protection
- advisor gives increased chance of reaching goals
- advisor give ability to monitor charges
- advisor will consider goals
- advisor willensure diversification
What do you think of for ‘protection’?
Existing cover, employment cover, future cover, wills, nom. form, pension, gov. support
PATHETIC WINE
Pension death benefits
Affordability or budget
Taxation: income tax, CGT, IHT
Health
Emergency fund
Trusts
ISAs and National Savings
Capacity for loss and attitude to risk
Wills and guardianship
Inheritances
Nomination forms for pensions
Ethical considerations
PASTE TWIG
Product
Assured
Sum assured
Term
Extras
Trusts
Waiver of contribution
Indexation
Guarantees
