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Question 1

A settlor transfers property to two trustees to hold on trust for her children. The trust deed contains no express powers dealing with the appointment of trustees. The trustees wish to appoint a third trustee.
Can the number of trustees be increased, and, if so, who has power to make the appointment?

No, there is no power to increase the number of trustees.

Yes, the trustees may appoint an additional trustee if the beneficiaries consent.

Yes, the trustees may appoint an additional trustee.

Yes, the settlor may appoint an additional trustee.

Yes, the trustees may appoint an additional trustee if the settlor consents.

Answer 1

C) The number of trustees may be increased, and the trustees may appoint an additional trustee. In the absence of special provisions in the trust instrument, statutory power is given to the existing trustees to appoint additional trustees provided that they do not increase their number to more than four. (B) is incorrect because the consent of the beneficiaries is not required. (A) is incorrect because the appointment of an additional trustee will only increase the number of trustees to three, so the trustees may make the appointment. (D) and (E) are incorrect because the settlor has made no express provision in the trust instrument.

Question 2

In his will a man appointed two trustees to hold his residuary estate on trust for his widow for life with remainder to his children. The trust fund includes a holding of 30% of the shares in a family company. One of the trustees holds 20% of the shares in the same company. The trustee is unanimously appointed to be a director of the company and is paid £5,000 in director’s fees.

Which of the following best describes the position of the trustee in relation to the director’s fees?

He holds the fees on trust for the beneficiaries.

He may keep the fees.

He must decline to accept the fees.

He may keep the fees provided that the widow consents.

He may keep the fees provided that his co-trustee consents.

Answer 2

(B) The trustee may keep the director’s fees. The general rule is that a trustee may not profit from their position, and that a trustee holds any profit received as a result of their trusteeship on trust for the beneficiaries. The rule does not apply where the profit would have been received regardless of the trusteeship. Here, the trustee was unanimously appointed as director. This means that he would have been appointed even if the 30% vote attached to the trust shares had been cast against his appointment. Therefore, he is not receiving a profit from the trusteeship and may keep the fees. (A) is incorrect because the usual rule does not apply on these facts. (C) is incorrect because, where the rule applies, a trustee is not required to decline a profit but holds it on trust for the beneficiaries. (D) and (E) are incorrect because no consents are relevant to this issue.

Question 3

A trustee was appointed under the terms of a trust where there are two beneficiaries equally entitled. The trust property consists of 2,000 shares in a public company, an apartment, and an antique painting. The trustee agrees to purchase the antique painting for 50% above its market price.

Is the trustee permitted to purchase the painting?

Yes, if at least one of the beneficiaries consents.

Yes, if the trustee pays a reasonable price for the property.

Yes, if the trustee buys the painting on the open market.

No, unless the trustee pays a figure deemed to be significantly in excess of the market price.

No, the trustee is not permitted to purchase the painting.

Answer 3

(E) The trustee is not permitted to purchase the painting. A trustee may not purchase any property owned by the trust. This is self-dealing and a breach of the trustee’s fiduciary duty. (A) is incorrect because a trustee may not purchase trust property if one of the beneficiaries consents. (B), (C) and (D) are incorrect because a trustee may not purchase trust property even if they pay full market value or more than market value or buy the property on the open market.

Question 4

An outright owner of a house orally declares themselves trustee of that house for a nominated beneficiary.

Which of the following best states the legal position with regard to validity of the declaration of trust?

The declaration is valid as an oral declaration of trust.

The declaration is valid so long as the outright owner’s declaration is witnessed by at least one other person.

The declaration is valid so long as the trust is properly constituted.

The declaration is valid so long as it is in writing.

The declaration is valid so long as it is later evidenced by signed writing.

Answer 4

(E) A trust of land is unenforceable unless there is written evidence of the declaration of trust, signed by the settlor. Here, although the trust was declared orally, it will be valid if it is later evidenced in a writing signed by the settlor. (A) is therefore incorrect. (B) is incorrect because there is no witness requirement for a declaration of trust. (C) is incorrect because a properly constituted trust of land still requires a signed writing. (D) is incorrect because a trust of land must be evidenced by a writing which is signed by the settlor.

Question 5

A settlor transfers property to a solicitor to hold on trust for the settlor’s children, some of whom are under the age of 18. The trust deed contains no express powers dealing with trustees’ powers to charge for their services.

May the solicitor charge her normal professional charges for the time she spends on trust matters?

Yes, provided the settlor consents in writing.

No, unless she appoints another trustee who then consents in writing.

Yes, provided the adult beneficiaries consent in writing.

No, because there is no express power in the trust instrument.

Yes, unless the trust instrument expressly states that she cannot.

Answer 5

(B) The solicitor may not charge for her services unless she appoints another trustee who then consents in writing. The normal rule is that trustees may not profit from their trusteeship, so a trustee may not charge unless there is an express power in the trust instrument. However, by statute, a professional trustee may charge their normal professional charges for their services in relation to the trust provided that: (1) they are not a sole trustee, and (2) their co-trustee(s) consent in writing to their charges. The trustee has power to appoint a co-trustee and would therefore be able to charge if her co-trustee gave written consent. (A) is incorrect because once the trust has come into existence the settlor retains no further control unless there are express provisions in the trust instrument. (C) is incorrect because beneficiaries can only agree to a trustee receiving payment if they are all of full age and capacity. (D) is incorrect because the statutory power applies where relevant, even though there is no express power in the trust instrument. (E) is incorrect because a professional trustee may only charge with their co-trustees’ written consent.

Question 6

In her will a woman gave £80,000 to trustees on trust to invest and use the income for the maintenance of the building of the Midshire Youth Centre. A few months after her death, the centre closed, the building was sold, and its contents were given to other youth centres.

Which of the following statements best describes the effect of the gift?

The trust fails, and the trustees hold the money on resulting trust for the residue of the woman’s estate.

The trustees have discretion to use the funds for a similar purpose.

The gift will be applied cy-pres if the woman named another charity in her will.

The gift will be applied cy-pres if the court finds evidence of general charitable intention.

The gift will be applied cy-pres for a similar purpose.

Answer 6

(E) The gift will be applied cy-pres for a similar purpose. Where a trust for a charitable purpose has taken effect but subsequently fails because it is impossible or impractical to carry out, the funds will be applied cy-pres to a similar charitable purpose. This is a charitable trust because it is for a charitable purpose, it is for the public benefit, and it is exclusively charitable. The gift vested at the date of the woman’s death, at which time the youth centre was still in existence. This means that the gift for a charitable purpose was effective at the date of death, and the funds will be applied cy-pres. (A) is incorrect because the trust does not fail. (B) is incorrect because the application of the funds is not for the trustees to decide. (C) is incorrect because the settlor does not need to name another charity in order for funds to be applied cy-pres. (D) is incorrect because it is only necessary to find evidence of general charitable intention in a case of initial failure.

Question 7

Two professional trustees were appointed under a trust. The trustees, who had no accounting expertise, engaged an accounting firm to produce the annual trust accounts. One of the trustees has now submitted an invoice for the accountant’s fees, together with his own fee invoice for work as a trustee. The trustee paid the accountant from his personal funds as the accountant wanted payment quickly. There is no express provision in the trust instrument relating to trustees’ charges.

Can the trustee charge for his services as trustee and be reimbursed for paying the accountant?

The trustee may not charge for his services, but he can be reimbursed for paying the accountant.

The trustee may not charge for his services or be reimbursed because there is no charging clause in the trust instrument.

The trustee cannot charge for his services because he delegated the most onerous duties to the accountant.

The trustee may charge for his services, but he cannot be reimbursed for paying the fee of a person to whom delegation has been made without court authorisation.

The trustee may charge for his services if his co-trustee consents, and he can be reimbursed for paying the accountant.

Answer 7

(E) The trustee may charge for his services if his co-trustee consents, and he can be reimbursed for paying the accountant. The general rule is that a trustee may not charge for services, although they may recover expenses. However, a professional trustee may charge reasonable remuneration for their services, provided that: (1) they are not the sole trustee, (2) the co-trustees give their written consent, and (3) there is no express provision in the trust instrument relating to the trustees’ charges. Therefore, the trustee here can charge for his services provided that his co-trustee consents. (A) is therefore incorrect. (B) is incorrect. A charging clause would permit the trustee to charge for his services, but, as explained above, a professional trustee can charge for their services if the trust instrument is silent. (C) is incorrect because there is no rule that a trustee cannot charge for their services if they did not fulfil the most onerous duties. (D) is incorrect. Trustees may delegate administrative functions and pay for them without court authorisation.

Question 8

In his will a testator leaves all his estate to trustees on trust “to share the income and capital at their discretion between my direct descendants and their spouses and dependants as they think fit”.
Which of the following statements best describes the validity of the trust?

The trust fails because it is not possible to list all the current members of the class.

The trust is valid because the class is sufficiently clear as to enable a court to regulate the trust.

The trust fails if the trustees are unable to trace one of the testator’s children.

The trust fails as it includes beneficiaries who are not yet ascertained.

The trust is valid because some of the beneficiaries are clearly defined.

Answer 8

(B) The trust is valid because the class is sufficiently clear as to enable a court to regulate the trust. This is a discretionary trust. The settlor has not defined the interests of the beneficiaries; he has described a class of beneficiaries and given the trustees discretion as to how to distribute the fund between them. The test for certainty of objects applicable to a discretionary trust is the ‘given postulant’ test: can it be said with certainty whether any given individual is or is not a member of the class? Provided this test is satisfied, the trust is valid even though the trustees may not be able to list all the potential beneficiaries. Here, the terms used are conceptually certain, and a court would be able to decide whether the trustees have acted within their powers. (A) is incorrect because it describes the complete list test, which applies only to trusts where the settlor has defined the interests of the beneficiaries (‘fixed interest trusts’). (C) is incorrect as administrative difficulties, such as the inability to trace a particular known beneficiary, will not cause a trust to fail. (D) is incorrect as the fact that more people may join the class in the future, either by birth or marriage, does not affect certainty of objects as long as the relevant test of certainty is satisfied. (E) is incorrect as it is too vague: the duty of the trustees is to ‘survey the field’ of beneficiaries which they cannot do if the class is not sufficiently clear.

Question 9

A testator died leaving a will in which he appointed trustees to hold the residue of his estate on trust for his grandson provided he attains the age of 25. The will does not contain any express powers. During the grandson’s minority the trustees have been using the income for the grandson’s maintenance, education, or benefit and accumulating the surplus income. The grandson has just reached the age of 18.

Which of the following best describes what the trustees should do with the surplus income accumulated during the grandson’s minority?

Pay the surplus income to the grandson.

Pay or apply the surplus income for the grandson’s maintenance, education, or benefit until he is 25.

Pay the surplus income to the grandson at their discretion.

Hold the surplus income as capital until the grandson is 25 or dies under that age.

Hold the surplus income on resulting trust for the testator’s estate.

Answer 9

(D) The trustees should hold the surplus income as capital until the grandson is 25 or dies under that age. Where trustees have been accumulating surplus income during a child’s minority, the accumulated income accrues to capital once the child attains the age of 18. When the beneficiary’s interest in capital vests, he becomes entitled to the accumulated income as well as the capital. In this case, the grandson’s interest in capital will vest when he is 25, and at that date he will become entitled to claim the income accumulated while he was under 18 along with the capital of the fund. If the grandson dies before he is 25, his interest in the capital will fail. In the absence of any substitutional gift in the will, the fund will pass, together with the income accumulated while the grandson was under 18, on resulting trust for the testator’s estate. (A) is incorrect because income accumulated during the grandson’s minority accrues to capital. He is only entitled to claim the income arising after he turns 18. (B) and (C) are incorrect because once the grandson is 18 the trustees have no further discretion in relation to the income or the accumulations of income. (E) is incorrect because a resulting trust will only arise if the grandson dies before he is 25.

Question 10

An unmarried couple have been living together in a house registered in the name of one party alone. At the time of the purchase, the legal owner paid 25% of the purchase price, and the non-legal owner paid nothing. The remaining amount was raised by a mortgage on the property. Throughout their relationship the legal owner repeatedly assured the non-legal owner that the house should be considered both of theirs, but there is no written evidence of this. The parties have now separated, and the non-legal owner wants to claim an equitable interest in the property.

Does the non-legal owner have a valid basis for claiming an interest in the house?

Yes, because the parties lived in the house as a family home.

Yes, because the legal owner’s statements show an intention that the non-legal owner should have an interest in the house.

No, because the non-legal owner paid nothing toward the purchase price.

No, because there is no written declaration of trust in favour of the non-legal owner.

No, because the house is registered in the name of one party alone.

Answer 10

(B) The non-legal owner has a valid claim for an interest in the house because the legal owner’s statements show an intention that the non-legal owner should have an interest in the house. When the non-legal owner attempts to assert an equitable interest in the family home, the court will impose a constructive trust in favour of the non-legal owner if the non-legal owner can establish that: (1) the parties had a common intention, either express or inferred, that the non-legal owner should have an equitable interest in the property; and (2) the non-legal party relied to their detriment on the common intention. To establish that the parties had an express common intention, the non-legal owner must show that there were actual discussions between the parties which led the non-legal owner to the belief that they should have an interest in the property. Here, the legal owner repeatedly assured the non-legal owner that the house should be considered both of theirs. These statements show an express common intention that the non-legal owner should have a share in the house. (A) is incorrect because the fact the parties lived in the house as a family home is insufficient to show that the non-legal owner has a claim to the house. (C) is incorrect because a non-legal owner can have an equitable interest in property despite not paying toward the purchase price. (D) is incorrect because the court can impose a constructive trust in favour of the non-legal owner when there is no declaration of trust. (E) is incorrect because a non-legal owner can claim an interest in property through an express declaration of trust or by asking the court to impose a common intention constructive trust.

Question 11

Last year a man transferred shares into the name of his adult son. No reason was given for the transfer. The man now claims that he made the transfer because he feared that he would be liable for a large legal claim and he wanted to keep the shares out of reach of his potential creditors. The claim has not materialised, and he wishes to claim the shares back. His son refuses to hand the shares over.

Which of the following statements best describes the man’s position?

He may not reclaim the shares because there was no declaration of trust.

Whether he may reclaim the shares depends on whether the court finds it in the public interest.

He may not reclaim the shares because it is presumed that he intended to make a gift.

He may reclaim the shares because the son holds them on a presumed resulting trust.

He may not reclaim the shares because the court will not hear evidence of his illegal purpose.

Answer 11

(B) If a property transfer was made as part of an illegal or fraudulent transaction, the court must decide whether it is in the public interest to allow a claim. The court would take into account all relevant factors, including the underlying purpose of the relevant law and the respective conduct of the parties. In these circumstances, the court would likely consider whether creditors have in fact been deceived, whether the son was aware of the scheme, and the effect on either party of allowing the man’s claim. (A) is incorrect because no declaration is required; if the court finds it in the public interest, a trust would be implied. (C) is incorrect because, as indicated above, the result is uncertain and depends on the court’s view of all of the relevant factors. (D) is incorrect because the presumption of resulting trust does not apply in this case. As indicated above, the court will consider all of the factors and make a decision based on public interest. (E) is incorrect for two reasons: the result is uncertain and the court will consider all of the relevant factors, including evidence of an illegal purpose which has not been carried out

Question 12

In her will, a woman left the residue of her estate to trustees on trust to divide at their discretion and to apply the first share for the advancement of art appreciation in the county of Surrey and the second for such charitable or other purposes as the trustees should decide.

Which of the following statements best describes the validity of the trust?

It fails because it is not exclusively charitable.

It is a valid charitable trust.

It is a valid charitable trust in relation to the first share only.

It fails because it lacks public benefit.

It is a valid private discretionary trust.

Answer 12

(C) The trust is a valid charitable trust in relation to the first share only. A charitable trust must be for a charitable purpose (as defined in the Charities Act 2011), it must be for the public benefit, and its objects must be exclusively charitable. If a trust directs trustees to divide assets between some charitable and some noncharitable objects, the court can sever the charitable part from the noncharitable part and allow the charitable part to take effect. (A) is incorrect because the trustees are directed to divide the fund, and so the first share may be valid as a separate charitable trust. (B) is incorrect because the trusts of the second share fail because the objects are not exclusively charitable. (D) is incorrect because the first share does benefit the public. (E) is incorrect because the trust fails as a private trust for lack of certainty of objects.

Question 13

A settlor transfers funds to himself and his two brothers to hold on discretionary trusts for the settlor’s children, nieces, and nephews. The trust instrument contains no special provisions relating to the appointment of trustees. The settlor dies. There are currently four beneficiaries, all over the age of 18.
Which of the following best describes the legal position regarding replacement of the settlor as trustee?

The settlor’s personal representatives must appoint a replacement trustee.

The beneficiaries must appoint a replacement trustee.

The surviving trustees may appoint a replacement trustee but need not do so.

There is no power to appoint a replacement trustee because two trustees survive.

The surviving trustees must appoint a replacement trustee.

Answer 13

C) The surviving trustees may appoint a replacement trustee but need not do so. Where a trustee dies and the trust instrument contains no special provisions relating to the appointment of trustees, the surviving trustees have power to appoint a replacement trustee. There is no obligation to replace a deceased trustee except where a sole trustee dies. (A) is incorrect because this would apply only where a sole trustee dies, which is not the case here. (B) is incorrect because beneficiaries only have power to direct the appointment of trustees where they are all of full capacity and together absolutely entitled, which is not the case here. In any event, there is no obligation upon beneficiaries to exercise this power. (D) is incorrect because the power to appoint a replacement applies regardless of the number of surviving trustees. (E) is incorrect because there is no obligation to replace a deceased trustee except where a sole trustee dies.

Question 14

A trustee of two separate trust funds takes £4,000, in breach of trust, from the first trust and deposits the amount in his personal bank current account. The trustee then takes £6,000, in breach of trust, from the second trust and deposits the amount in his account. Before both deposits were made, the balance on the trustee’s account was nil. Thus, the balance after both transactions were completed was £10,000. The trustee then removed £4,000 from his account and used it to pay living expenses. The sum of £6,000 remains in the account. The beneficiaries of the two trusts bring a claim against the trustee, and the beneficiary of the first trust wishes to argue for a displacement of the rule of first-in, first-out.
Which of the following is the beneficiary’s best argument?

The use of the first-in, first-out rule would cause injustice to the beneficiaries.

The use of the first-in, first-out rule would be inconsistent with the principles of honesty and fairness.

The use of the first-in, first-out rule would cause an injustice to the trustee.

The use of the first-in, first-out rule would be unconscionable to operate on the facts.

The use of the first-in, first-out rule would be impossible to apply to this situation.

Answer 14

(A) The beneficiary’s best argument is that the use of the first-in, first-out rule would cause injustice to the beneficiaries. If a trustee mixes funds of two trusts in a current account, the traditional rule is that the first money into the account is the first money out of the account. However, courts will instead divide the money proportionately if: (1) applying the first-in, first-out rule is contrary to the express or implied intention of the claimants, (2) it is impractical to apply the rule, or (3) applying the rule would cause injustice to the parties. (B), (C), (D), and (E) are incorrect because they do not state a basis on which the court will displace the first-in, first-out rule.

Question 15

A woman tells her daughter: “All my jewellery is yours. I will keep it in the safe for you and you can have it when you are 21”. The woman dies leaving a will in which she leaves all her estate to her second husband. The daughter is 19 years old, and the jewellery remains in the safe.

Which of the following best describes whether the daughter can claim the jewellery?

Yes, because her mother held it on trust for her.

No, because the daughter is only 19.

Yes, because her mother made a perfect gift of the jewellery to her.

No, because there is no written evidence of the mother’s intention.

No, because the mother did not intend to declare a trust.

Answer 15

A) The daughter can claim the jewellery because her mother held it on trust for her. Where an individual wishes to create a trust of personalty with herself as trustee, there must be certainty of intention to be legally bound, of subject matter (the trust property), and objects (the beneficiary). There are no formal requirements for a declaration of trust of personalty. Here the mother’s words show that she intends to be bound, the trust property is certain (the jewellery), and the daughter is the beneficiary. (B) is incorrect because the daughter’s interest is vested. The mother’s words do not suggest that the daughter’s interest is conditional upon attaining 21, merely that she intends to hold the property for her until then, so the daughter owns the whole equitable interest and can claim the property. (C) is incorrect because a gift requires transfer of the legal title, in the case of chattels by delivery or by deed. Here, the mother did not intend to give her daughter the legal title and did not transfer it to the daughter. (D) is incorrect because the requirement for a declaration of trust to be evidenced in signed writing only applies to trusts of land. (E) is incorrect because the mother’s words are clear enough to show that she intends to be legally bound even though she did not use the word ‘trust’.

Question 16

A candymaker owns a shop in which she sells candy. She has taxable trade profits for the current tax year of £100,000. She also rents out part of the building in which her shop is located which generates a rental profit of £23,000. The personal allowance for the current tax year is £12,500.

What is the candymaker’s taxable income?

£111,000

£122,000

£110,500

£104,000

£109,500

Answer 16

(B) £122,000. Both the candymaker’s trade profits and rental profits are assessable. Therefore, in total her income was £123,000. She may deduct her personal allowance from this figure. However, as her income is above £100,000, the personal allowance must be tapered so that she loses £1 of allowance for every £2 of income above £100,000. She has £23,000 of income over £100,000, so £11,500 must be deducted from her £12,500 allowance, leaving only £1,000 of the allowance. Therefore, the candymaker’s taxable income is £100,000 + £23,000 - £1,000 = £122,000

Question 17

A few clients have asked a solicitor whether they are required to register for income tax self-assessment.
Which of the following clients would be required to register?

A shopkeeper with a salary of £15,000 and bank interest of £1,000.

A university lecturer earning £42,000 salary per year and with £450 interest.

A lorry driver with a salary of £23,000 and dividend income of £2,000.

A sole trader.

A bartender with a salary of £25,000 and gross rental income of £7,500 from renting a room in her own house.

Answer 17

(D) A sole trader. People who trade as sole traders, partners, company directors, and people with interest or dividend income higher than the tax-free thresholds are required to register for self-assessment. (A) is incorrect because as a basic rate taxpayer, the shopkeeper is entitled to a personal savings allowance of £1,000. (B) is incorrect because the university lecturer’s salary will have already been taxed through PAYE. The university lecturer’s interest income will not trigger registration because of the personal savings allowance. A person in the higher rate tax band (the university lecturer is in that band as their income is greater than £37,500) has a personal savings allowance of £500. (C) is incorrect. The lorry driver need not register – again, tax on their salary will have been collected through PAYE, and their dividend interest does not trigger self-registration because everybody is allowed to receive £2,000 of dividends tax free. (E) is incorrect because a person who receives employment income will usually pay tax on it through PAYE, so the bartender’s salary will have already been taxed. Her rental income is covered by the £7,500 rent a room scheme. Therefore, she need not register.

Question 18

A man recently opened a small woodworking shop outside of London in which he sells hand-made furniture. Now that he is trading, he has asked his solicitor when the first tax payment is due and what the deadline is for submission of his tax return for tax year 2020/21.

What should the solicitor tell the client?

Payment is due by 31 January 2021, and submission is due by 31 January 2022.

Payment is due by 31 July 2021, and submission is due by 31 January 2021.

Payment is due by 31 January 2021, and submission is due by 31 July 2021.

Payment is due by 31 January 2022, and submission is due by 31 October 2021.

Payment and submission are both due by 31 January 2022.

Answer 18

(A) Payment is due by 31 January 2021, and submission is due by 31 January 2022. The first payment on account is always due on 31 January during the tax year, so for 20/21 the due date is 31 January 2021. The submission of the return must be no later than the 31 January after the end of the tax year, so for 20/21 it is due on the 31 January 2022. 31 October 2021 is the submission date for those taxpayers submitting a paper return only.

Question 19

A mechanic operating as a sole trader has approached his solicitor seeking advice as to how much he will be required to pay when his first payment on account falls due for 2020/21. His income tax payable for 2019/20 was £48,000 and for 2020/21 £56,500.

What amount should the solicitor tell the client?

£24,000

£52,250

£28,250

£48,000

£26,125

Answer 19

(A) £24,000. Payments on account are always calculated using 50% of the prior year’s income tax payable figure. So, for 2020/21, the payments on account will be calculated using 50% of 2019/20 income tax payable. 50% of £48,000 = £24,000.

Question 20

An electrician has trade profits of £85,000 and dividend income of £20,000 for 2020/21 tax year. During the year, the electrician also obtained a £150,000 loan which he used to pay an inheritance tax liability as a result of the recent death of his great aunt for which he was sole beneficiary. Interest payments on this loan amount to £3,500 during tax year 2020/21. The personal allowance for the 2021 tax year is £12,500. The dividend rate for higher rate taxpayers is 32.5%.

What is the electrician’s income tax liability?

£28,000

£28,350

£26,250

£25,950

£29,850

Answer 20

(C) £26,250. The electrician has total income of £105,000 (trade profits plus dividend income). From that amount, qualifying loan interest relief will be given for the £3,500 interest paid on the loan taken out to pay the IHT liability. This leaves the electrician with net income of £101,500. This is above the £100,000 threshold, so the £12,500 personal allowance needs to be tapered £1 for every £2 of income above £100,000. So, the personal allowance will be reduced by £750 to £11,750. The personal allowance will be deducted from the non-savings income (trade profits - interest on the qualifying loan), leaving £69,750 taxable. The first £37,500 will be at the basic rate of 20%, the remainder at 40%. £2,000 of the dividends are covered by the dividend allowance, leaving the remainder to be taxed at the higher rate for dividends of 32.5%

Question 21

A woman wanted her friend to move out of her house and told him that she would help him financially if he needed help. The friend moved out of the woman’s house on 1 May 2019. When he moved out, the woman gave her friend £3,000 to help him meet expenses. The woman gave her friend an additional £4,000 in June 2020 to help him meet expenses. And she gave him an additional £6,000 on 1 July 2021. The woman had not made any exempt gifts before giving her friend these three gifts.

How much of these gifts would be subject to inheritance tax?

£1,000

£2,000

£3,000

£4,000

£5,000

Answer 21

(D) £4,000. Only the gifts in excess of the £3,000 annual exclusion would be subject to tax. And any exclusion not used in the previous tax year can be carried forward one year as well. Here, the 2019 gift would not be subject to tax because it will be reduced to £0 by the annual exemption. As the gift did not exceed £3,000, there is no need to apply the annual exemption from the previous tax year and it will be lost. (Note that there is no option to use the previous years’ exemption first.) The £4,000 gift will be reduced to £1,000 after the exemption is applied for the 2019/20 tax year. There was no exemption remaining to bring forward from the previous tax year, and so the £1,000 will be subject to tax. Similarly, the £6,000 gift will be reduced by the £3,000 by applying the 2020/21 annual exemption, and there is no other exemption to pull forward, so £3,000 of the £6,000 will be subject to IHT. £1,000 + £3,000 = £4,000

Question 22

A man died on 20 January 2021, leaving an estate worth £1,100,000. The estate included a holiday home in the UK worth £250,000 which he left to his sister. He left the rest of his estate to his brother and appointed a friend to act as executor.

Who will pay the inheritance tax due on the estate, and who will suffer the burden of the inheritance tax payable on the estate?

The executor will pay the tax, and only the brother will suffer the burden of payment.

The sister and brother both will pay the tax and suffer the burden of the tax in proportion to the part of the state each inherited.

The executor will pay the tax and suffer the burden of the tax.

The executor will pay the tax and the sister will suffer the tax.

The brother will pay the tax and suffer the burden of the tax.

Answer 22

(A) The executor will pay the tax, and only the brother will suffer the burden of payment. Inheritance tax due on the death estate is paid by the executors but it is suffered/borne by the residual legatee, here the man’s brother.

Question 23

A woman died on 16 July 2019. She made one lifetime gift on 10 November 2013 into a discretionary trust. She paid the lifetime tax of £52,250, and the gross chargeable transfer value of the gift was £586,250. The nil rate band at the time of the woman’s death was £325,000.

How much inheritance tax was due on the lifetime gift as a result of the woman’s death if the applicable taper relief was 60%?

£10,450

£61,260

£104,500

£0

£41,800

Answer 23

D) £0. To calculate the tax due, we subtract the NRB at the time of the woman’s death from the gross chargeable transfer value (£586,250 - £325,000 = £261,250). We multiply the difference remaining by the 40% inheritance tax rate (£261,250 x 40% = £104,500). Because more than three years passed between the gift and woman’s death, we next apply taper relief, which the facts provide was 60% (that is 60% of the tax is relieved so only 40% of the tax would be due: £104,500 x 40% = £41,800). We then credit the inheritance tax already paid when the gift was made (£41,800 - £52,250 = 10,450). Because the result is a negative number, no more tax is owed, but neither is a refund due. When the lifetime tax already paid in life exceeds the tax on death, the difference is not repaid.

Question 24

A man died on 20 December 2019 and left an estate worth £2,200,000 to his daughter. The man’s main residence, valued at £600,000, was included in the total value of the estate. The man did not make any lifetime gifts.

The residence nil rate band for 19/20 was £150,000, and the regular nil rate band was £325,000.
What amount of the man’s estate is chargeable to tax?

£1,725,000

£1,125,000

£1,825,000

£1,775,000

£1,875,000

Answer 24

(C) 1,825,000. To calculate the amount of the estate chargeable to tax, we reduce the amount of the estate by the nil rate band (£2,200,000 - £325,000 = £1,875,000). Because the man’s estate included his main residence and he left it to his daughter – a lineal descendant – the amount may also be reduced by the residence nil rate band (RNRB). However, because the man’s estate is over £2,000,000, we taper the RNRB by £1 for every £2 over £2,000,000. Here, the man’s estate was over by £200,000. Therefore, we reduce the RNRB by £100,000, leaving only £50,000 of the £150,000 RNRB to be deducted. £1,875,000 - £50,000 = £1,825,000.

Question 25

An elderly couple gifted £1 million of assets to their children three years before the couple passed away at the same time in an automobile crash. The £1 million gift was in addition to the annual exempt gifts they had made. There were no assets in the estate after this gift. The nil rate band is £325,000.
The taper gift tax rate applicable to gifts given between three and four years before a donor’s death is 20%. The inheritance tax rate is 40%.

What is the inheritance tax due on the estate?

£260,000

£208,000

£140,000

£112,000

No tax is due.

Answer 25

(D) £112,000. The gift will be included as part of the estate, as the gift was made within seven years of the time of death. However, the tax-free (nil rate) band is doubled since the gift came from both spouses. Thus, the taxable estate is £350,000, which is £1 million minus (2 x £325,000). This amount is taxed at 40% (£350,000 x 40% = £140,000). However, because the gift was made three years before the couple’s death, the tax due will be tapered by 20% (in other words, only 80% of the £140,000 is due). £140,000 x 80% = £112,000.

Question 26

Section 143(1)(a) of the Road Traffic Act 1988 states “a person must not use a motor vehicle on a road or other public place unless there is in force in relation to the use of that vehicle by that person a policy of insurance”.

What is the level of intent needed by the defendant to be guilty of the offence?

Specific intent.

Basic intent.

Negligence.

Knowledge.

None.

Answer 26

(E) is the correct answer because there is nothing within the section above that requires any intent on behalf of the defendant to be guilty of the offence. Offences of strict liability do not require any intent on the part of the defendant for the defendant to be guilty. If it were a crime of specific intent, the section would have to say that the defendant intended to drive without insurance. There is nothing in this section that requires this. Therefore (A) is incorrect. (B) is wrong because for basic intent a defendant would have to intend to not be insured or be reckless as to obtaining insurance. Nothing in this section states this. There is no requirement of negligence or knowledge either; therefore (C) and (D) are incorrect.

Question 27

A police officer found a man wandering the streets of London with blood on his shirt and muttering to himself. After a short investigation, the officer discovered a body of a woman the man had recently killed. The man told investigators that voices in his head told him the woman was an evil demon who had to be killed. The man was charged with murder.
Which of the following is not a factor in determining whether the man would be successful in raising diminished responsibility as a partial defence?

An abnormality of the mind that affects mental functioning.

A recognised medical condition affecting mental functioning.

An abnormality of the mind that provides an explanation or cause of the killing.

An abnormality of the mind that is of an extremely grave character.

An abnormality of the mind that substantially impaired the defendant’s ability to exercise self-control.

Answer 27

(D) is correct because all the other factors are considerations. A defendant who kills another is not to be convicted of murder if the defendant (1) was suffering from an abnormality of mental functioning which (2) arose from a recognised medical condition that (3) substantially impaired the defendant’s ability to understand the nature of his conduct, form a rational judgment, or exercise self-control. The abnormality must provide an explanation for the killing. Grave character relates to things said or done by the victim that amount to a qualifying trigger that causes a loss of control, not diminished responsibility

Question 28

A woman wishes to raise self-defence in a trial where she punched the alleged victim.

Which of the following best sets forth the standards and burdens of proof in the case?

The legal and evidential burdens lie with the prosecution, and the standard is beyond a reasonable doubt.

The legal and evidential burdens lie with the prosecution, and the standard is on the balance of probabilities.

The legal burden lies with the prosecution, the evidential burden lies with the woman, and the standard of proof is beyond a reasonable doubt.

The legal and evidential burdens lie with the woman, and the standard of proof is on the balance of probabilities.

The legal burden lies with the woman, the evidential burden lies with the prosecution, and the standard is on the balance of probabilities.

Answer 28

(C) The evidential burden falls on the party who must raise the elements, whether elements of the offence or defence. The legal burden falls on the party who must prove those elements. The standard of proof is the level to which that party must discharge the burden. If a defendant wants to claim that they acted in self-defence, they must raise the defence, so the evidential burden lies there. However, once the defence has raised self-defence, it is for the prosecution to disprove the defence. Whenever the prosecution must prove (or disprove) an element of a case, the standard of proof is always beyond a reasonable doubt.

Question 29

A youth attacks a passerby in the street with a knife, intending to cause them serious harm. A security guard sees the attack taking place and intervenes, trying to help the passerby. Unfortunately, the security guard causes the passerby to fall into a lamppost, worsening the injury they suffer. The passerby is taken to hospital. The passerby refuses a blood transfusion that would save their life, as it is contrary to their religion, and consequently their condition worsens further still. After a week in hospital, the passerby is taken off life support and dies.

Is the youth guilty of murder?

No, because the security guard intervened and worsened the injuries.

No, because the passerby refused a blood transfusion that would have saved their life.

No, because the passerby would not have died if life support had not been removed.

No, because the youth did not intend to kill but only to cause serious harm.

Yes, because all of the elements of murder are made out.

Answer 29

(E) Murder requires the defendant to cause the death of a human being with intent to kill or cause grievous bodily harm (‘GBH’). Here, the youth intended to cause GBH, and there is no break in the chain of causation from their act to the passerby’s death. (A) is incorrect as third party intervention will only break the chain of causation if the act is free, deliberate, and informed. Here, the security guard’s actions are not free, as they are responding to the youth’s attack on a passerby. (B) is incorrect as under the eggshell skull rule, a defendant must take their victim as they find them, including religious beliefs. (C) is incorrect as medical treatment will only break the chain of causation if it is so bad that it makes the original injury the background in which the negligence takes place, which is not the case here. (D) is incorrect as the mens rea for murder can be satisfied either by an intention to kill or by an intention to cause

Question 30

On a sunny Saturday, a mother takes her 8-year-old daughter to the local swimming pool. They are both swimming in the pool. Coincidentally, the daughter’s teacher is also at the swimming pool, enjoying her day off. There is also a young man swimming laps. A lifeguard is on duty. The daughter dives into the shallow end of the pool and hits her head on the bottom. She loses consciousness in the water. No one intervenes in time, and the daughter dies.
Which of the following parties could potentially be held liable for their failure to act?

The mother only.

The lifeguard only.

The lifeguard and the mother only.

The lifeguard, the teacher, and the mother only.

The lifeguard, the teacher, the mother, and the young man.

Answer 30

(C) Only the lifeguard and the mother could potentially be held liable for their failure to act. There is no general duty to act, so a party will generally not be liable for a failure to act. If, however, there exists a duty of care, then the court can impose liability for a failure to act on that duty. Here, the mother has a duty of care arising from her special relationship. Additionally, the lifeguard has a contractual duty to act. The teacher, whilst she has a contractual duty of care whilst working, is off duty enjoying her day off, and so has no duty to act. Likewise, the young man has no duty of care towards the daughter. For these reasons, (A), (B), (D), and (E) are incorrect.

Question 31

At 9.30am a solicitor told a partner on the other side of a transaction that he would send the partner a deed signed by the solicitor’s client as soon as he held a signed copy. The client had an appointment to see her solicitor to sign the deed at 11.00am that day. The client did not make it into the office as she had a heart attack at 10.30am and unfortunately died. The partner on the other side of the transaction had reasonably relied on the solicitor’s statement and has accused the solicitor of being in breach of undertaking.

Was there a breach of undertaking under these facts?

No, because the undertaking could not be fulfilled due to death of the client.

Yes, because the deed was not sent.

No, because the statement was oral, not written.

No, because the solicitor indicated that he would send the deed as soon as he received it and he did not receive it.

Yes, because compassion is not required under the Rules.

Answer 31

(D) The solicitor giving the undertaking qualified his statement by saying that he would hand over the deed when he held a signed copy. He knew at the time he made the statement that he could not fulfil the promise at that point. Thus, there was no breach of undertaking and (B) is incorrect. (A) has the correct result but for the wrong reason. There is no breach because the solicitor qualified his statement and not because it became impossible to fulfil the undertaking. Similarly, (C) is incorrect because an oral statement is capable of being an undertaking. (E) is probably true technically, but the solicitor qualified his statement in any event, so there was no breach.

Question 32

The solicitors for a buyer and seller of a house have agreed to use the Law Society formulae for exchanging contracts by telephone. They also agree to use the Standard Conditions of Sale, unamended. The parties are ready to exchange, but the buyer’s solicitor has limited time available over the course of the next week and so has suggested that they exchange using Formula A. The solicitor for the seller agrees.

How will the solicitors effect exchange of contracts?

Each solicitor will hold their own client’s signed part of the contract and will confirm the versions are the same over the telephone. Once exchange has happened, they will then send their client’s signed part to each other, and the buyer’s solicitor will send the agreed deposit to the seller’s solicitor to hold as stakeholder.

Prior to exchange, the buyer’s solicitor will send the contract signed by the buyer to the seller’s solicitor, along with the deposit. The seller’s solicitor will confirm both contracts are the same over the telephone, insert the exchange and completion dates in both, and send the part signed by the seller to the buyer’s solicitor.

Each solicitor will hold their own client’s signed part of the contract and will confirm the versions are the same over the telephone. Once exchange has happened, they will then send their client’s signed part to each other, and the buyer’s solicitor will hold the agreed deposit funds as stakeholder.

Prior to exchange, the buyer’s solicitor will send the contract signed by the buyer to the seller’s solicitor. The seller’s solicitor will confirm both contracts are the same over the telephone, insert the exchange and completion dates in both, and send the part signed by the seller to the buyer’s solicitor. The buyer’s solicitor will then hold the agreed deposit as stakeholder.

Each solicitor will send the other their client’s signed contract. The solicitors will confirm the versions are the same over the telephone, and once exchange has happened, the buyer’s solicitor will then send the deposit funds.

Answer 32

(B) Formula A is used when the solicitors think it is prudent for one solicitor to hold both contracts on exchange. Here, the buyer’s solicitor has limited availability, so under Formula A, the buyer’s solicitor will send the contract signed by the buyer to the seller’s solicitor, along with the deposit. The seller’s solicitor will confirm both contracts are the same over the telephone, insert the exchange date in both, and send the part signed by the seller to the buyer’s solicitor. (A) is incorrect because it describes a Formula B exchange - where each solicitor holds their own client’s part of the contract, confirms they are the same, and then sends it. Since the buyer’s solicitor will have limited time here, the facts provide that the solicitors did not agree this type of exchange. (C) is incorrect both because it describes a Formula B exchange, as just explained (where each solicitor holds their own client’s contract), and because under the unamended Standard Conditions of Sale, the seller’s solicitor will hold the deposit funds. (D) is incorrect because whilst it generally describes a Formula A exchange, as with the previous choice, under the unamended Standard Conditions of Sale, the seller’s solicitor will hold the deposit. (E) is incorrect because none of the formulae for exchange require both solicitors to send their client’s contract to the other solicitor before effecting exchange of contracts.

Question 33

A limited company has instructed a solicitor to act on the acquisition of a lease of shop premises. The limited company is funding the purchase with a mortgage. The company’s solicitor has received the mortgage offer. The company is taking an assignment of an existing lease which has a residue of 21 years and an unregistered title.

How long after completion does the solicitor acting for the limited company have to register the mortgage at Companies House?

30 days.

14 days.

2 months.

21 days.

7 days.

Answer 33

(D) If a limited company is borrowing money, it is necessary to register the charge at Companies House within 21 days. Thus, the remaining answers are incorrect.

Question 34

A shop owner rents their shop under the terms of a lease which is protected by the Landlord and Tenant Act 1954 (Part II). The lease is due to end in two years’ time. The shop owner wants to remain in the premises at the end of the term but also wants to save money. Therefore, the shop owner serves a section 26 notice on the landlord requesting a new lease at a lower monthly rent.

Did the shop owner validly serve the notice requesting a new lease?

Yes, because the notice may be served any time before the end of the lease term.

No, because the notice must be served between six and 12 months before they wish the new tenancy to start.

No, because the shop owner should have served a section 25 notice.

Yes, because the notice must be served two years before they wish the new tenancy to start.

No, because the notice must be prepared by a solicitor acting for the tenant who wishes to request the new lease.

Answer 34

(B) The shop owner did not validly serve the notice requesting a new lease because a section 26 notice must be served between six and 12 months before the new tenancy is to start. The facts provide that the lease has two years to run; accordingly, the shop owner served the notice too early. (A) and (D) are incorrect because they state the wrong timescale. (C) is incorrect because a section 25 notice is the notice a landlord would serve to end the tenancy. (E) is incorrect, as it is not a legal requirement for a solicitor to draft the notice (although in this case, the tenant might wish that they had taken the advice of a solicitor to avoid the mistake that he made).

Question 35

A solicitor is acting for the buyer of a new build property on a large estate from a developer. The solicitor has carried out their pre-completion official search with priority against part of a registered title (OS2).

For how long will the buyer be protected against registration of new adverse interests against the title to the property as a result of the search?

30 calendar days.
30 working days.
15 working days.
15 calendar days.
Two months.

Answer 35

(B) The official search with priority against part of a registered title protects the buyer against registration of new adverse interests against the title to the property which is the subject of the search for 30 working days. The buyer’s registration application will have priority over any application for an entry to be made in the register during the 30-day period (known as the priority period) if the buyer completes and registers their title within the priority period. (Note that the OS2 priority period is the same as the priority period conferred for an official search with priority against the whole of a registered title (OS1).) (A), (C), (D), and (E) are incorrect as they do not state the correct time period. Note that 15 working days is the priority period conferred by a full land charges search in an unregistered title transaction (completion must take place during the 15 working day priority period). Two months is the time period within which an application for first registration must be made to Her Majesty’s Land Registry following the purchase of an unregistered title.

Question 36

The landlord of a number of factory units on a business park wants to regain possession of the last unit on the site. The unit is occupied by a tenant under the terms of a lease which is protected under the Landlord and Tenant Act 1954 (Part II). The landlord has submitted a planning application to the local authority to redevelop the factory units into a hotel and gym complex which he thinks will be more lucrative than the factory units. The tenant has always complied with their covenants under their lease.

Can the landlord bring the tenancy to an end?

Yes, if the landlord serves a valid section 25 notice and relies on the ground that the landlord wants to demolish or reconstruct the premises.

Yes, if the landlord serves a valid section 26 notice and relies on the ground that the landlord wants to demolish or reconstruct the premises.

No, because the lease is protected by the Landlord and Tenant Act 1954 (Part II), so the landlord cannot bring the tenancy to an end.

No, because the tenant must bring the tenancy to an end by serving a valid section 26 notice.

No, because the landlord cannot demonstrate that the tenant has failed to comply with the tenant covenants under the terms of the lease.

Answer 36

(A) The landlord can bring the tenancy to an end by serving a valid section 25 notice on the ground that they want to demolish or reconstruct the premises. This is indicated in the question because the landlord has applied for planning permission and wishes to build a hotel and gym complex. (B) is incorrect because the tenant (not the landlord) serves a section 26 notice to declare their desire to request a new lease. (C) is incorrect because a landlord can bring a protected tenancy to an end by serving a valid section 25 notice and relying on one of the grounds contained in the 1954 Act. (D) is incorrect because, as indicated already, the landlord can bring a tenancy to an end provided they can make out one of the grounds for possession specified in the 1954 Act. (E) is incorrect because whilst the breach of certain tenant covenants are statutory grounds for terminating a tenancy at the end of the lease term, there are other grounds under which the landlord may seek to terminate, including the desire to demolish or reconstruct here, as well as the availability of suitable, alternative premises for the tenant and the landlord’s desire to move into the premises.

Question 37

A firm is holding £5,000 on account of costs for a client and has recently made some payments on behalf of the client. This firm will always use client money where appropriate and when there are sufficient funds available.

Which of the following payments will be shown on the client side of the client’s ledger?

A court fee of £100.

A taxi fare of £26 paid from petty cash.

An expert’s fee of £300 plus £60 VAT addressed to the firm.

A bill for £2,000 plus £400 VAT from legal counsel, paid with a cheque sent to the firm by the client, and the payee on the cheque was legal counsel.

Professional charges totalling £500 for a surveyor, paid by way of cheque made out to the surveyor and sent by the client.

Answer 37

(A) This is the only payment that would be shown on the client account. (B) is incorrect because petty cash must always come from the business account. (C) is incorrect because the bill was addressed to the firm, so the firm is the principal. Therefore, payment must come from the business account. (D) and (E) are incorrect. Unless a cheque is addressed to the firm, it cannot do anything with it but pass it on to the addressee.

Question 38

A company is owed £10,000 by a debtor. The company has obtained a court order and applies to Her Majesty’s Land Registry (‘HMLR’) to register a notice against the charges register of the title to the debtor’s property. The company receives a notification from HMLR that there is an official search with priority against the title which was registered five days before their application was submitted.
What will happen to the debtor’s application?

It will be registered against the charges register by HMLR.

It will be held by HMLR until the expiry of the priority period.

HMLR will reject the debtor’s application.

It will be registered against the property register by HMLR.

It will be registered against the proprietorship register by HMLR.

Answer 38

(B) The application will be held by HMLR until the expiry of the priority period. Any application which is received during the 30-working day priority period is treated as pending during the priority period. If the person or organisation with the benefit of the priority search makes the application for registration within the priority period, the debtor’s application will fall away. If the person or organisation with the benefit of the priority search do not register within the priority period, the debtor’s application will be registered on the register of title (assuming that it is a valid application). Thus, the remaining answers are incorrect.

Question 39

A homeowner is irritated that his neighbour has started to run a car repair business from his garage at his home. The homeowner has noticed a significant increase in traffic to the area and is annoyed at the noise caused by the neighbour’s work to the cars. The neighbour has put up a sign advertising his car repair business. The homeowner tells the local authority about the business which is now taking place in a residential area.
How long does the local authority have to take enforcement action against the homeowner’s neighbour?

Four years.

One year.

There is no time limit.

Five years.

Ten years.

Answer 39

(E) Running the car repair business from a residential area would be sufficient to constitute a material change of use from a planning point of view, in which case the local authority has a 10-year enforcement period. Thus, the remaining answers are incorrect.

Question 40

A bank has repossessed a property and has obtained an order for possession. The bank has instructed a solicitor to act for it in relation to the sale of the property.

Which title guarantee is most appropriate in this circumstance?

No title guarantee.

Limited title guarantee.

Full title guarantee.

Indemnity title guarantee.

Unregistered title guarantee.

Answer 40

(A) No title guarantee is most appropriate in this circumstance. No title guarantee is typically given when a seller has no knowledge of the property at all, for example, a mortgagee in possession, as the bank is here. (B) is incorrect. A limited title guarantee is narrower in scope than a full title guarantee; in it, the seller merely warrants that the seller has not created any charges or granted any rights during their period of ownership that have not been disclosed in the contract. This type of guarantee is typically given by a seller with less knowledge or involvement with the property and is appropriate when, for example, the seller is a personal representative. (C) is incorrect. A full title guarantee includes a guarantee that the seller is entitled to sell the property, that they will do all in their power to transfer the purported title to the buyer, and that they are selling the property free from all charges or encumbrances other than those disclosed in the contract. This type of guarantee is generally given by a seller who owns the full legal and equitable interest in the property and has lived at the property. (D) and (E) are incorrect. There are no such title guarantees.

Question 41

A man has decided to sell his home in Sheffield so that he can retire to Christchurch in Dorset. The solicitors for the parties have agreed to use the Law Society’s Conveyancing Protocol and the Code for Completion by Post. Contracts have already been exchanged, which incorporate the Standard Conditions of Sale unamended.

Which of the following is a requirement under the Code after the sale proceeds are received?

The buyer’s solicitor will date the executed transfer and send it to the seller’s solicitor by first class post or document exchange no later than five days after the date of completion.

The buyer’s solicitor will date the executed transfer and send it to the seller’s solicitor by first class post or document exchange by no later than the day after completion.

The seller’s solicitor will date the executed transfer and send it to the buyer’s solicitor by first class post or document exchange no later than five days after the date of completion.

The seller’s solicitor will date the executed transfer and send it to the buyer’s solicitor by first class post or document exchange no later than the day after completion.

The seller’s solicitor will date the executed transfer and send it to the buyer’s solicitor by first class post or document exchange no later than the close of business on the day of completion

Answer 41

(D) The Code for Completion by Post provides that after completion, the seller’s solicitor must act as agent for the buyer’s solicitor, meaning that once the sale proceeds are received, the seller’s solicitor will date and send the executed transfer (and any other relevant documents) to the buyer’s solicitor not later than the end of the working day following completion. Note that the seller’s solicitor is also required to confirm to the buyer’s solicitor and to whomever holds the keys (such as an estate agent) – by telephone, fax, or email – the date and time at which completion has taken place. This notice must be given as soon as possible after completion. (A) and (B) are incorrect because it is the seller’s solicitor who completes the completion documents. (A) is also incorrect in that it states the wrong timescale. (C) and (E) are incorrect for that same reason.

Question 42

A company director is interested in purchasing an office block which has recently had building work carried out to it. The company director wants to know whether planning permission has been granted for the work.

How will the company director’s solicitor find out this information?

By carrying out a drainage and water search.

By carrying out a bankruptcy search.

By carrying out a survey.

By carrying out a local search.

By carrying out an environmental search.

Answer 42

(D) The local search reveals the planning and building regulation history relating to a property. (A) is incorrect because a drainage and water search reveals whether the property is connected to public foul drainage and water systems. (B) is incorrect because a bankruptcy search is carried out against the buyer’s name if the buyer is taking out a mortgage. (C) is incorrect. The survey reports on the physical condition of the property. It does not reveal planning and building regulation documents. (E) is incorrect as the environmental search reveals whether the land has been put to contaminative use in the past or might be subject to flood risk.

Question 43

A farmer is selling a field beneath which runs a water pipe. The farmer allowed the owner of a neighbouring property to connect into the water pipe some years ago. The farmer does not want to deter a buyer from purchasing the field and asks his solicitor not to refer to the water pipe in the contract of sale.

How should the farmer’s solicitor respond to his client?

The solicitor should inform his client that the seller’s duty of disclosure is narrow in scope and it is not necessary to refer to the water pipe in the contract.

The solicitor should inform his client that the water pipe is a latent defect which must be disclosed in the contract.

The solicitor should inform his client that the water pipe is a patent defect which must be disclosed in the contract.

The solicitor should inform his client that it is not necessary to refer to the water pipe unless the issue comes up in the buyer’s pre-contract enquiries

The solicitor should inform his client that the right of the neighbouring landowner to use the water pipe should be formalised in a deed of easement.

Answer 43

B) The solicitor should inform his client that the water pipe is a latent defect, and latent defects must be disclosed in the contract. A latent defect is one which is not discoverable from inspection of the property. Since a buyer would not be able to discover an underground water pipe through a normal inspection, it, and the neighbour’s right to use it, should be disclosed in the contract. (A) is incorrect. It is true that the seller’s duty of disclosure is narrow in scope, but a latent defect is one of the exceptions, meaning that it is necessary to refer to it in the contract. (C) is incorrect as the water pipe is a latent defect (one not discoverable by inspection) as opposed to a patent defect (one discoverable by inspection). (D) is incorrect for the reasons discussed above; because this is a latent defect, it must be disclosed regardless of whether it is raised in an enquiry by the buyer. (E) is incorrect. Whilst a deed of easement may be a practical solution to deal with the informal arrangement, this does not actually answer the question which related to the contents of the contract of sale.

Question 44

A solicitor has completed a commercial transaction and must close the client’s account. There is a credit on the client account for £500. The solicitor immediately makes a payment to her client of £500.
Which one of the following entries would be the most appropriate entry to record this payment?

Credit cash account - client side; Debit client ledger - client side

Credit cash account - business side; Debit client ledger - client side

Debit cash account - business side; Debit client ledger - business side

Debit cash account - client side; Debit client ledger - client side

Debit cash account - client side; Credit client ledger - client side

Answer 44

(A) The payment should be recorded as a debit in the client ledger - client side, as the firm would need to debit the client account to send her the money. The corresponding entry would be a credit entry in the cash account, as the firm no longer owes this money to the client. (B) is incorrect as this is not business money and so should not be reflected on the business side. (C) and (D) are incorrect because there should be a corresponding credit to match the debit entry. (E) is incorrect because the payment should not be reflected as a credit to the client account.

Question 45

A firm of solicitors issues a bill to its client. The bill is comprised of the firm’s professional charges plus VAT, a search fee from the land registry, which the firm has already paid, and legal counsel’s fee, which the firm has not paid. The client has sent the firm a cheque for the entire sum.

Which of the following statements best describes how the cheque from the client should be handled?

The cheque is client money and must be placed promptly in the client account.

The cheque must be placed in the client account and any business money should be transferred promptly.

The cheque should be returned to the client with a request for separate payment for each item.

The cheque is client money and should be placed in the client account indefinitely.

The cheque is business money and the entire sum must be placed promptly in the business account.

Answer 45

(E) As a bill has been issued including the disbursements, the cheque does not include any client money and so should be placed into the business account. (A) is incorrect as this receipt does not contain client money. (C) is not the best method of dealing with this cheque, as it would cause the client a great deal of inconvenience. (B) and (D) are incorrect as we know the receipt is not client money.

Question 46

A probate solicitor is good friends with an estate agent who often takes the solicitor to golf club days out and for expensive meals. The solicitor regularly recommends the estate agent to his clients, informing each client of his personal relationship with the estate agent and urging the client to contact them. Out of loyalty to the estate agent, the solicitor does not recommend any other estate agents to clients, but he sincerely believes that the estate agent is competent.

Are the solicitor’s actions in accordance with the SRA Standards and Regulations?

No, because the recommendations might not be in the best interests of each client.

Yes, because the solicitor has not taken any money from the estate agent.

No, because accepting the meals and hospitality from the estate agent amounts to a prohibited referral fee.

Yes, because the solicitor does not have a financial interest in the estate agent’s business.

Yes, because the solicitor informs clients of his personal relationship with the estate agent.

Answer 46

(A) The Principles provide that a solicitor must act with independence, and in each client’s best interests. Therefore, when a solicitor recommends a particular person or business to a client, the recommendation must be in the best interests of that particular client and must not compromise the solicitor’s independence. Here it appears that the solicitor is not acting with independence because he will not recommend any other estate agents out of loyalty to this estate agent, even though there might be other estate agents who are more suited to a client’s specific needs. The fact that the solicitor has not received payments of money from the estate agent is irrelevant; the meals and golf days might be seen as inducements, which indicate that the solicitor has been persuaded to recommend the estate agent when it is not in the best interests of the clients to do so. (B) is therefore incorrect. (C) is incorrect because a ‘prohibited referral fee’ is the payment or receipt of referral fees in claims for damages following personal injury or death and is not relevant here. (D) is incorrect because even though the solicitor does not have a financial interest in the estate agent’s business, he is not acting with independence or in the clients’ best interests. (E) is incorrect. It is true that a solicitor must inform the client of any interest they have in referring the client to another person, but even if the solicitor does this, they still must act with independence and in the best interests of the client when making the referral.

Question 47

A woman is interested in buying a paddock for her horses. Access to the public highway is important to her. She sees the following statement on the estate agent’s particulars of sale:

‘The property benefits from a right-of-way over the eastern side of the neighbouring field to access the nearest public highway, known as ‘The Common Lane’.

The woman’s solicitor has sent her a seller’s register of title.

Where should reference to the right-of-way appear on the title?

The Proprietorship Register.
The Charges Register.
The Property Register.

Answer 47

D) The Property Register. The woman is interested in buying a property with the benefit of the right-of-way. The question makes it clear that the title is registered. If a registered title benefits from any rights, these would appear on the Property Register. (A) is incorrect as the Proprietorship Register specifies the class of title held and the name of the current holder or holders of the legal estate. (B) is incorrect as the Charges Register contains details of encumbrances on the land, that is, entries which adversely affect the land. (C) and (E) are incorrect because the facts ask specifically where the reference should appear on the title – and the question makes it clear this is a registered title. It might be necessary to look at a conveyance or deed if the right-of-way is not yet registered

Question 48

A solicitor acts for a corporate client on a commercial transaction. The client is registered for VAT. The solicitor pays an expert’s fee of £7,000 plus VAT of £1,400 on behalf of the client and receives an invoice addressed to the client.

Which of the following statements is correct with respect to these events?

The principal method applies and the solicitor should use business money to pay the invoice.

The solicitor must use petty cash to pay the invoice.

The agency method applies, and the solicitor can use client money to pay the invoice.

The solicitor should issue the client a VAT invoice for £1,400.

The solicitor must record £1,400 on its own HMRC VAT ledger.

Answer 48

(C) The agency method must be used here as the invoice is addressed to the client. If there are sufficient funds in the client account, the entire amount should be debited from the client account, without distinguishing between the fee and VAT. (A) is incorrect because the agency method, not the principal method, applies here and will be used. (B) is incorrect. Petty cash would not be used here as this is not an expense of the firm; it is the client’s. Also, typically petty cash is used only to deal with small payments, and the payment here is not small. (D) is incorrect. A firm should issue VAT invoices only in relation to its own professional charges/supply of goods; here, it should simply pass the original invoice, including the VAT element, on to the client. (E) is incorrect as only VAT related to the solicitor’s professional charges is recorded on its HMRC VAT ledger

Question 49

A principal in a law firm, together with their spouse, is buying a house and selling their existing one. The principal asks an associate in the firm to act for them in the conveyance.

Which of the following statements is true with regard to this representation?

Any deposit received and held for the principal and their spouse as agent is business money.

Any deposit received and held for the principal and their spouse as agent must be shown on a separate ‘stakeholder’ ledger.

Any money advanced from the principal and their spouse’s mortgage company must be recorded on their client ledger.

Any deposit received and held for the principal and their spouse as agent must be recorded on their client ledger.

Any deposit received and held for the principal and their spouse as stakeholder can be recorded on their client ledger.

Answer 49

(D) When a firm acts as an agent for sellers who are its client, money the firm holds as agent belongs to the sellers. Thus, these funds must be recorded on the client ledger for the principal and their spouse. It is irrelevant that the associate is acting for a principal of the law firm and their spouse; the deposit is still client money. (A) is incorrect as any deposit received and held for the principal and their spouse as agent is client money. (B) is incorrect as the deposit held jointly for the principal and their spouse must be shown on their existing client ledger because money held as agent belongs to the sellers. (C) is incorrect because in any property transaction, if the firm is provided with a mortgage advance for its client to assist with the purchase of the property, the mortgage advance belongs to the mortgage company until completion and so must be recorded as such. (E) is incorrect because stakeholder money is held jointly for the sellers and the buyers and must be recorded on a separate stakeholder ledger.

Question 50

A first-time buyer has put in an offer to buy a property which has recently been extended by the seller. The first-time buyer has instructed her solicitor and has paid money on account of searches. The first-time buyer is very cautious and wants to be sure that all is in order regarding the extension. She telephones her solicitor to discuss this point.

How would the solicitor find out more detail about the extension and the documentation relating to it?

From looking at the results of a local planning search and Property Information Form.

From looking at the replies to enquiries and the results of a local search.

From looking at the Property Information Form and the results of a local search.

From looking at the drainage and water search and Property Information Form.

From looking at the results of a local search and drainage and water search.

Answer 50

C) To find out more about the extension, the solicitor would look at the Property Information Form (‘PIF’) and the results of a local search. The seller should disclose the fact that they have carried out building works on the PIF. Details of the planning and building regulation documentation will be revealed by the local search. (A) is incorrect as there is no such thing as a local planning search. (B) is not as good an answer as (C) as the PIF would be the starting point; it would be the basis of enquiries, but it might be that enquiries are not needed, depending on what is provided in the PIF. (D) and (E) are incorrect as the drainage and water search reveals whether the property is connected to the public foul drainage system and public water supply and is not related to the extension.