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CeMAP 1 > MOCK EXAM 3 > Flashcards

MOCK EXAM 3 Flashcards

1
Q

Which one of the following social security benefits is NOT tax-free?

A. Maternity allowance
B. Statutory Maternity Pay
C. Attendance allowance
D. Carer’s allowance

A

B. Statutory Maternity Pay

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2
Q

In relation to income tax, which one of the following is not classed as a taxable benefit in kind?

A. A loan of £8000 at 3% below market rates
B. Contributions to an approved pension scheme
C. Employer sponsored private medical insurance
D. Luncheon vouchers worth £1.50 per day

A

B. Contributions to an approved pension scheme

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3
Q

Jeremy has capital losses that exceed gains made in the current tax year. What option, if any, does he have in relation to the residual losses?

A. Carry them back to last year
B. None
C. Claim a capital gains tax rebate
D. Carry them forward to future years

A

D. Carry them forward to future years

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4
Q

Doris and Fred are entitled to receive the married couple’s income tax allowance. Why is this?

A. Both also qualify for state disability benefits
B. Fred is a starting rate taxpayer and Doris pays no tax
C. Their joint savings are below the £3000 threshold
D. Doris was born in 1936 and Fred 2 years earlier

A

D. Doris was born in 1936 and Fred 2 years earlier

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5
Q

Bernard received a share dividend cheque for £4,500 in May 2019. If he was a higher rate taxpayer, how much extra tax must he pay?

A. £79.20
B. £812.50
C. £2,437.50
D. £0

A

B. £812.50

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6
Q

May recently sold some shares and made a taxable gain of £13,200. If her taxable income for this tax year is £15,000, how much capital gains tax will she be required to pay?

A. £ 1,320
B. £2,500
C. £1,500
D. £1,860

A

A. £ 1,320

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7
Q

What is the stamp duty reserve tax due on a purchase of bearer instruments with a market value of £100,000?

A. £1000
B. £2000
C. £500
D. £1500

A

D. £1500

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8
Q

Two newly appointed trustees have been advised that their CGT allowance will be 100% of the standard allowance rather than 50% because:

A. none of the 2007/08 allowance was used.
B. the trust assets are based overseas.
C. they act as trustees for a mentally disabled person.
D. the trust fully comprises business assets.

A

C. they act as trustees for a mentally disabled person.

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9
Q

A qualifying life policy is maturing and the owner has been advised that capital gains tax will apply to the proceeds. This confirms that:

A. the policy was based offshore.
B. over 50% of the invested funds were held overseas.
C. the policy was written under trust.
D. ownership had changed hands.

A

D. ownership had changed hands.

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10
Q

In terms of individuals domiciled in the UK, which one of the following is true in relation to IHT?

A. The tax applies potentially to all their assets in whichever country it is held

B. The tax applies only to property held in the UK

C. Transfers between husband and wife are exempt even if one of them is not UK domiciled

D. UK charities have to pay tax on gifts from UK domiciled persons

A

A. The tax applies potentially to all their assets in whichever country it is held

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11
Q

In calculating a firm’s liability to value added tax (VAT), taxable turnover is defined as the:

A. amount liable to VAT when output tax has been deducted from input tax.

B. total value of all taxable supplies made in the UK in the course of business.

C. amount liable to VAT when input tax has been deducted from output tax.

D. total value of standard rated and exempt supplies made in the UK in the course of business.

A

B. total value of all taxable supplies made in the UK in the course of business.

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12
Q

On which one of the following savings products is interest paid gross but is potentially subject to income tax?

A. Individual Savings Account
B. Premium Bonds
C. ISA
D. Income Bonds

A

D. Income Bonds

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13
Q

Which of the following statements is correct in respect of a unit trust?

A. Any gain made on the sale of units by an investor may be liable to capital gains tax

B. The fund manager can borrow in order to take advantage of investment opportunities

C. An investor who requires mainly capital growth should purchase distribution units

D. The price at which an investor purchases units in the fund is referred to as the bid price

A

A. Any gain made on the sale of units by an investor may be liable to capital gains tax

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14
Q

Which organisation is responsible for the financial stability of banks and building societies?

A. The Prudential Regulatory Authority
B. Office of Fair Trading
C. The Financial Conduct Authority
D. The Stock Exchange

A

A. The Prudential Regulatory Authority

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15
Q

Jane, a higher rate taxpayer, has a fixed interest unit trust. If she receives gross income from this investment of £2,000 in this tax year, how much income tax, taking into account her personal savings allowance, will she be liable for assuming she has no other investments?

A. £650
B. £200
C. £450
D. £600

A

D. £600

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16
Q

Which of the following statements in respect of the eligibility rules for ISAs is correct?

A. Any type of ISA can be opened by an individual on behalf of another

B. The minimum age required to open an ISA is 18

C. The minimum age to access the equities element of an ISA is 18

D. An ISA can be opened in joint names

A

C. The minimum age to access the equities element of an ISA is 18

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17
Q

Which one of the following does the Government issue?

A. Redeemable ordinary shares
B. Gilt-edged securities
C. Permanent interest-bearing shares
D. Investment bonds

A

B. Gilt-edged securities

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18
Q

A right to buy shares at a specified price by a specified date is a:

A. forward contract
B. warrant
C. put option
D. future contract

A

B. warrant

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19
Q

Over the longer term what risk is normally associated with deposit-based investments?

A. The value of capital will fluctuate and may fall below the original investment

B. There is no guarantee that the original capital will be returned at maturity

C. The real value of capital may be eroded due to the effects of inflation

D. There is the potential for suffering large capital losses

A

C. The real value of capital may be eroded due to the effects of inflation

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20
Q

What is generally believed to be the relationship between investment risk and investment return?

A. The higher the risk, the lower the potential reward
B. The lower the risk, the lower the guaranteed return
C. The higher the risk, the higher the potential reward
D. The lower the risk, the more volatile the potential return

A

C. The higher the risk, the higher the potential reward

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21
Q

Greg decided to invest in cumulative preference shares as he wanted to ensure:

A. guaranteed security
B. conversion to ordinary shares
C. capital growth
D. some certainty regarding future dividend payment

A

D. some certainty regarding future dividend payment

22
Q

William is a higher rate taxpayer but his wife, Mary, has NO income at all. William has £60,000 in a high interest bank account. Which one of the following approaches would NOT reduce their overall tax bill?

A. Move some of the money into Mary’s name to make use of her personal allowances

B. Move some of the money into ISAs (up to the maximum annual limits)

C. Invest some of the money into Gilts in William’s name

D. Invest some of the money into National Savings Premium Bonds in William’s name

A

C. Invest some of the money into Gilts in William’s name

23
Q

Which one of the following statements is TRUE with regard to direct share investments?

A. Both dividends and gains are liable to income tax

B. Dividends are potentially subject to income tax and gains are potentially subject to capital gains tax

C. Income tax is charged at the investor’s highest rate and capital gains tax is charged at a fixed rate of 40%

D. Income tax is charged at a fixed rate of 20% and capital gains tax is charged at the investor’s highest rate

A

B. Dividends are potentially subject to income tax and gains are potentially subject to capital gains tax

24
Q

Which of the following statements concerning preference shares is false?

A. convertible shares are most commonly a type of preference share

B. they are part of the share capital of the company

C. they normally rank before ordinary shareholders for dividends

D. a fixed level of annual dividend income will always be received by a shareholder

A

D. a fixed level of annual dividend income will always be received by a shareholder

25
Q

Nancy and Ron are married and want to set up a life assurance policy that will pay their potential inheritance tax liability. Which type of policy would be the most suitable?

A. Joint life first death
B. Joint life second death
C. Low cost endowment
D. Unit linked

A

B. Joint life second death

26
Q

Which one of the following statements in respect of a unit linked endowment policy is correct?

A. A pre-determined guaranteed benefit is payable on maturity of the policy

B. The guaranteed death benefit only is paid on the death of the policyholder before the maturity date

C. The appropriate level of life cover is funded by encashing units on a monthly basis

D. The value of the policy at any time is the number of units held multiplied by the offer price

A

C. The appropriate level of life cover is funded by encashing units on a monthly basis

27
Q

Which of the following is one way in which a repayment mortgage differs fundamentally from a personal pension mortgage?

A. Life cover is not automatically built in

B. The higher the interest rate, the higher the monthly payment to the lender

C. Provided monthly repayments are made on time, the loan is guaranteed to be repaid in full at the end of the term

D. The interest charged is usually lower

A

C. Provided monthly repayments are made on time, the loan is guaranteed to be repaid in full at the end of the term

28
Q

Which type of mortgage scheme would help someone on low income to become an owner-occupier?

A. Shared ownership
B. Full endowment
C. Buy to let
D. Home reversion

A

A. Shared ownership

29
Q

At what rate is tax relief initially applied to contributions made to a personal pension plan?

A. Basic Rate only regardless of their income

B. Starting, basic or higher rate, depending on the contributor’s marginal rate of tax

C. Either basic rate or higher rate, depending on the contributor’s highest rate of tax

D. Starting rate only, regardless of the contributor’s marginal rate of tax

A

A. Basic Rate only regardless of their income

30
Q

Which one of the following in relation to stakeholder pensions is correct?

A. Charges must not exceed 2% of the fund’s value
B. There must not be any entry or exit charges
C. The minimum contribution is set at £50
D. The maximum gross contribution is £2,808 per annum

A

B. There must not be any entry or exit charges

31
Q

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

A. contributing to a permanent health policy
B. investing in an endowment assurance
C. making contributions to a critical illness policy
D. taking out joint life decreasing term assurance

A

D. taking out joint life decreasing term assurance

32
Q

Which type(s) of policy if any are used by governments to achieve their long-term economic objectives?

A. Fiscal only
B. Monetary only
C. Monetary and fiscal
D. Neither monetary nor fiscal

A

C. Monetary and fiscal

33
Q

What is gross domestic product? A measure of the value of:

A. demand within a country over a specified period

B. goods and services within a country over a specified period of time

C. money supply within a country over a specified period of time

D. national average earnings within a country over a specified period of time

A

B. goods and services within a country over a specified period of time

34
Q

How can a bank involved in wholesale banking raise money quickly in order to finance business activities?

A. By a further issue of shares
B. By borrowing from the Bank of England
C. From the interbank market
D. By issuing gilts

A

C. From the interbank market

35
Q

The regulatory framework for the financial services industry in the UK is a five tier process. Which one of the following bodies has taken over the activities in the third tier?

A. The Financial Ombudsman Service
B. The Building Societies Commission.
C. The Financial Conduct Authority
D. The Banking Code

A

C. The Financial Conduct Authority

36
Q

Julian wishes to make sure that he can meet all his essential outgoings if he is unable to work due to medium or long-term illness. Which of the following insurance products would be most suitable?

A. Accident and sickness
B. Critical illness
C. Income Protection
D. Private medical

A

B. Critical illness

37
Q

Which of the following statements in respect of term assurance is correct?

A. A decreasing term assurance policy will pay benefits only if the insured dies within the policy term.

B. A convertible term assurance policy can be converted to an endowment or whole-of-life assurance only within two years of the date of the original policy.

C. The benefits payable on the maturity of term assurance policies are always free of income tax.

D. If a convertible term assurance is converted to an endowment assurance, the maturity date of the new policy must be no more than five years beyond that of the original policy.

A

A. A decreasing term assurance policy will pay benefits only if the insured dies within the policy term.

38
Q

Michael keeps £20,000 cash in his home. After 5 years it will always be able to purchase less:

A. euros
B. in local shops
C. than if it had been invested in shares
D. units in a unit trust

A

B. in local shops

39
Q

Which of the following does not need to be included when recommending a product to a client?

A. Irrelevant details which fall outside the interests of the client
B. The benefits that the client will enjoy
C. The client needs that the product will address
D. The risks inherent to the product

A

A. Irrelevant details which fall outside the interests of the client

40
Q

A relationship built between a financial adviser and a customer should be built upon mutual:

A. interest
B. needs
C. profit
D. trust

A

D. trust

41
Q

Which one of the following would normally be regarded as the priority financial need for an individual who has surplus cash for the first time?

A. A unit trust
B. An emergency fund
C. An equity individual savings account
D. A pension plan

A

B. An emergency fund

42
Q

Which ONE of the following could be described as ‘proactive servicing’?

A. A telephone call to a client to arrange a pre-agreed review following a salary increase

B. A strongly worded letter to a client who is querying the charges on his unit trust

C. A call to a client’s wife who has contacted you to advise of her husband’s death

D. A letter to a client asking the reason for non-payment of three premiums

A

A. A telephone call to a client to arrange a pre-agreed review following a salary increase

43
Q

The main advantage of writing a life assurance policy in trust is to:

A. create a tax exempt fund
B. ensure the policy obtains qualifying status
C. ring fence the proceeds outside the individual’s estate
D. increase personal allowances

A

C. ring fence the proceeds outside the individual’s estate

44
Q

What requirement rests on a discharged bankrupt when applying for a mortgage?

A. As he is now discharged, there is no requirement
B. To disclose the previous bankruptcy to the lender
C. To disclose the information only if it occurred in the last 12 months
D. To ensure the lender conducts a thorough credit search

A

B. To disclose the previous bankruptcy to the lender

45
Q

When an individual dies intestate, leaving a spouse, children and an estate valued at £110,000, which one of the following applies?

A. The estate is divided equally between the surviving spouse and children

B. The entire estate passes to the spouse

C. The surviving spouse inherits a life interest only in the deceased’s entire estate

D. The first £50,000 passes to the surviving spouse absolutely, along with a life interest in half the remaining estate

A

B. The entire estate passes to the spouse

46
Q

Which of these methods is NOT a recognised way of providing ‘partnership protection?

A. Cross option method
B. Automatic accrual method
C. Buy and sell method
D. Back-to-back plan

A

D. Back-to-back plan

47
Q

Which ONE of the following items of property would be referred to as personality?

A. A collection of vintage wines
B. A detached house
C. A paddock used for grazing horses
D. A Victorian factory building

A

A. A collection of vintage wines

48
Q

Which one of the following is a definition of an attorney?

A. A person who delegates authority to another to act on their behalf

B. A person who does not himself have the authority to enter into a contract

C. A person who moves abroad but wishes to retain a decision maker in the UK

D. A person who is given the authority to act on behalf of another person

A

D. A person who is given the authority to act on behalf of another person

49
Q

One of the financial restrictions placed on undischarged bankrupts is that:

A. they are only able to borrow nominal amounts of money

B. they are unable to buy goods except for their own consumption

C. they are unable to contribute to protection policies

D. they are only able to work on an employed basis

A

A. they are only able to borrow nominal amounts of money

50
Q

Despite his recent marriage to Katrina, John’s existing will has remained in force. Why is this?

A. The will was written with the wedding in mind
B. The will was witnessed by Katrina and her father
C. John has no children or other dependents
D. John’s estate is valued at £199,000

A

A. The will was written with the wedding in mind

CeMAP 1 (25 decks)

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