Practice question lessons Flashcards
CS2A1 Lifetime ISA suitable things I forgot
- Can still use £16,000 ISA allowance
456 - Eligible under 40
- Stop contributing until 50
- Can take from 60
- Not linked to earnings
Must be specific to the clients
CS2A1 Lifetime ISA unsuitable things I forgot
- They already own a house
- Charges/advice costs to set up new plan
- Legislation may change
(Sam no HRT relief, limited to £4k, 25% exit charge, only contribute until 50)
CS2A1 Benefits and drawbacks of S&K starting a new DTA
Benefits
Current policy is unsuitable
Simple underwriting
Can match mortgage term
Drawback
They are older - need further underwriting
Initial advice costs
Extra admin/paperwork
CS2A1 Benefits & drawbacks to Sam and his employer of sacrificing his bonus for pension contributions
Advantages
Larger tax relief and NICs
Employer NICs saved at 13.8%
Employer can contribute NIC saving
Specifically saves £4,200 (40% IT and 2% NICs)
Disadvantages
Money not accessible until SPA
Decreased income reduces borrowing power and employee benefits based on pay (Sick Pay)
Be specific where possible
CS2A1 Outline adv and disadv of Sam remaining invested in his Global Equity Tracker funds within his pension
Adv.
No human judgement/run by computer
Performs in line with index
Liquid
High risk matches ATR
Active managers don’t always outperform benchmark
Wide range of indices
Easy to follow
Disadv.
Costs lead to underperformance
Tracking error - will never match exactly
Performs extra bad in a bear market
No active management
Lack of control over underlying investments
CS2A1 Emerging markets risks
CRipPLES
Counterparty & Currency
Regulatory
i
p
Political
Event
Systematic (&non)
CS1A3 Recommend and Justify to improve Dec & Carmen’s tax efficiency
Don’t forget to set Dec’s dividend income at £2,000
Also move UT into growth rather than income based funds
Pension contribution - IHT free vehicle & Flexible benefits
Stop income from ISA and take as withdrawals from UT (up to AEA)
Consider NS&I premium bonds as tax free income
CS2A2 R&J suitable policy to cover the mortgage in death or serious illness
Make sure to include WoP and guaranteed
- guaranteed is good for “certainty of cost throughout term”
CS2A2 R&J suitable IP policy in the event of incapacity or illness
Don’t forget indexation and term - to retirement age
WoP, Guaranteed
No need to worry about Kerry specifically
Think about the details of the policy, deferred, occupation, etc. etc.
CS1A1 R&J action to take for sustainable income in retirement
There are 5
For Class 3 NICs mention triple lock and some unused PA
Improve tax efficiency - see aim 3
Review fund choices - big one. Effectively argue for multi asset funds. Active management, diversification, AA expertise, access to specialist funds, opportunity for growth, rebalances regularly etc. etc.
Carmen make £3,600 regular annual contribution. Pound cost averaging, IHT free for some reason every time, Also flexible benefits. Finally PA unused every time
CS2A1 R&J to improve tax-efficiency
Thinks PECs
Pensions, EISs, and Cash account
Pension regular contribution
- tax free growth
- tax relief marginal rate
- matched by employer
- pound cost averaging
EISs
- Sam to consider
- Income tax relief
- Suits his ATR
Cash account
Either move to Kerry’s name (PSA & marginal tax rate)
OR move to S&S ISA (Income tax & CGT free)
OR move to cash ISA
- too much emergency fund
- Low interest rates in current account
CS1A2 R&J suitable trust arrangements for grandchild benefit
Obviously discretionary trust & why.
Think where its coming from and what it’s going into.
Think investments.
Use UT investments and some cash.
- Why are UT and cash not good (CGT, interest tax, bad returns on current account, too much emergency etc. etc. )
Invest in an investment bond within the trust
- Wide range of fund choices
- Avoid income paying investments
- 5% tax deferred withdrawals can be used
- Segments/policy could be assigned/top slicing/If benefic is non or BRT then no tax on encashment
CS1A2 Explain in detail Income Tax and CGT implications of transferring UT to discretionary trust for grandkids.
9/10 marks are on holdover relief
1) its an option
how it works acq cost
how it works when gain is realised
trustees are now responsible for the gain
can be held over again to beneficiaries
must be claimed by both parties
If gains realised inside trust then £6150 AEA, 20% CGT rate
£1,000 standard rate band then 45%/39.35% on income within trust
CS1A1 Additional information acronym & meanings
GIDDy CHAsE
Gifts
Income & Expenses
Declan’s pension (big)
Deposit account
y
Carmen’s annuity
Health & Family (big)
Assets & Plans
Experience & Growth
CS1A1 Factors to consider …
acronym & meanings
Annual review:
PIGEon Ass
PIGE = 4 each
A = 2
Personal changes
Investments
Gifts
External changes
o
n
Allowances
s
s
