RO1: Chapter 3

Question 1

What is the major difference in the taxation of limited companies and unincorporated businesses?

Answer 1

Limited companies = Pay neither income or capital gains tax, they only pay corporation tax on profits and gains
Unincorporated companies = Pay income and capital gains tax

Question 2

What events will normally revoke an ordinary Power of Attorney (POA)?

Answer 2

• Death
• Bankruptcy
• Mentally Incapable

Question 3

What POA enables a person to carry on on being a POA for the donor in the event of them being mentally incapable?

Answer 3

Enduring Power of Attorney (EPA)

Question 4

What must a donor do to enable a attorney to be a EPA in the event of them being mentally incpable?

Answer 4

Must be established before the donor becomes mentally incapable

Question 5

What is a lasting POA?

Answer 5

This was introduced as a agreement where the donor may give the attorney power to make decisions about their personal health and welfare as well as their property and financial affairs.

Question 6

Are contracts made by someone with a mental health condition invalid?

Answer 6

No, although if they do not understand what they are signing and the other party is aware of this it will then be invalid.

Question 7

What is a ‘invitation to treat’?

Answer 7

This is where you invite someone to make a offer.

Question 8

Under the law of agency, who does an IFA owe a duty of care to? their client or the insurer?

Answer 8

Their client.

Question 9

What is joint ownership?

Answer 9

This is where two people own a property (or other types of assets) equally.

Question 10

What is joint tenancy?

Answer 10

This is where two individuals own the property and neither can sell without the others agreement. When the other person passes away they will inherit the property. (Suitable for spouse/civil partners)

Question 11

What is tenancy in common?

Answer 11

This is where each owner holds their share separately (does not need to be equal). This is most suitable for friends living together who do not want equal share etc.

Question 12

What is a shared ownership?

Answer 12

This is where the individual has shares in part of the property and the other half is owned by the house association. They can eventually by the whole property from the house association.

Question 13

What does staircasing mean?

Answer 13

increasing shares in a property until 100%

Question 14

A court will only consider a petition for bankruptcy where a creditor is owed at least how much?

Answer 14

£5,000.00 (Or a share or debt totalling £5,000.00 between creditors)

Question 15

What are the 3 things that are required for a Will to exist?

Answer 15

• Must be in writing
• The Will must be signed by the testator (person making the Will)
• Attestation (The signature must be witnessed by 2 or more people when the Will is signed)

Question 16

Who has the legal ownership of trust property?

Answer 16

The Trustees

Question 17

What type of trust is most life offices’ standard trust?

Answer 17

Power of Appointment Trust

Question 18

What are the three certainties required to create a trust?

Answer 18

• Words (To show a trust is intended)
• Object (Beneficiaries)
• Subject (Subject matter must be certain)

Question 19

What is a sole trader?

Answer 19

This is a person who solely controls their own business and are liable for the debts of the business.

Question 20

How often to Sole Traders pay income tax?

Answer 20

Twice yearly directly to HMRC

Question 21

What is a partnership?

Answer 21

2 or more individuals who run a business as partners and are self-employed

Question 22

How do individuals pay tax if they are part of a partnership?

Answer 22

Individuals only pay tax on their share of the business (amount agreed between them)

Question 23

Who is responsible for the debts and tax in a Partnership?

Answer 23

Each partner has unlimited liability for the trade debts of the partnership, they are solely liable for their own tax.

Question 24

How are debts managed in a Limited Liability Partnership?

Answer 24

self-employed partners are not liable for the partnership’s debts only their own debts.

Question 25

How is tax paid by limited companies?

Answer 25

• Do not pay income tax, pay corporation tax on all profit made by the company
• Taxation taken from business not from employees

Question 26

Who is responsible for debts in a limited company?

Answer 26

• Responsible for its debts to the limit of its assets
• Managers/directors/shareholders of the company are not liable for its debts (Unless they are guilty of unlawfully trading knowing the company was insolvent)

Question 27

What must public companies have to exist?

Answer 27

Must have at least 2 directors, 2 shareholders and a company secretary

Question 28

For a Binding Contract to exist what must take place?

Answer 28

Offer and Acceptance and both parties must have the power to contract.

Question 29

Some people do not have the capacity to enter a contract, who could these be?

Answer 29

• Minors
• People under the influence
• People with a mental health condition

Question 30

What is a freehold ownership?

Answer 30

The building and the land it sits on it owned until they sell the land or pass away

Question 31

What is a leasehold ownership?

Answer 31

The land and building is not owned outright by the buyer and is leased from the person who owns it (A lease can typically be from 99 – 125 years)

Question 32

What is a Commonhold ownership?

Answer 32

Commonhold is in place to eventually replace leasehold. This is where the Commonhold association owns the land, the building, and the common parts. Owners of flats are unit-owners.

Question 33

What is a alternative to bankruptcy?

Answer 33

Individual voluntary arrangement (IVA) is an alternative to bankruptcy once the IVA is approved the creditors can take no legal action to recover the debt.

Question 34

What is a ‘Trustee in Bankruptcy’?

Answer 34

Sell bankrupts’ assets and disrepute to creditors (excluding the individuals ‘tools of their trade’ a vehicle if used for their employment and clothing, furniture and bedding belonging to themselves and their family.

Question 35

What is the Statutory Legacy amount?

Answer 35

£270,000.00

Question 36

If a person dies intestacy and has a spouse and child what will they receive?

Answer 36

• Spouse will receive all personal chattels
• Statutory legacy of £270,000.00
• Half of balance outright
• Children will receive other half of balance.

Question 37

If a person dies intestacy and has a spouse and NO children what will they receive?

Answer 37

Spouse will receive everything.

Question 38

What is a trust?

Answer 38

A trust is a means of arranging property for the benefit of other people, without giving them full control over it.

Question 39

Who is the settlor of a trust?

Answer 39

Person who owns the trust and assets.

Question 40

Who are the beneficiaries of trust?

Answer 40

Assets of the trust are given to them to benefit them.

Question 41

Who are the Trustees of a trust?

Answer 41

People who take control over assets until given to someone else. (Look after asset in the interests of the beneficiaries)

Question 42

Why is it unwise for a Settlor to name themselves as a trustee or beneficiary on their trust?

Answer 42

It is unwise for settlors to name their selves as beneficiaries as they will be liable to IHT.

Question 43

What does the rules of ‘Saunders vs Vautier (1841)’ enable beneficiaries to do?

Answer 43

This enables beneficiaries to claim the trust from the trustees as long as the beneficiaries must all be known and have reached the age of the majority and there must be no possibility of further beneficiaries to be added.