Topic 15: The main advice areas Flashcards
What main factors affect the calculation of the level of sickness cover needed by a working parent with children?
The extent of any sickness benefit from an employer; the nature and amount of available state benefits; the number and ages of the children; and the availability of any help from family and friends with childcare and housekeeping.
What is the purpose of key person insurance?
To mitigate the adverse impact on a business’s profits caused by the death
or long‑term illness of an important member of staff.
Hegley Surveying Services wants to take out key person
insurance on their senior surveyor, Simone. Her annual salary
is £47,000. The company’s total annual salary bill is £400,000
and its latest published gross profit was £1.5m. Calculate the
appropriate sum assured, assuming the estimated time to
recover from the loss of Simone would be five years.
(47,000 ÷ 400,000) × 1,500,000 × 5 = £881,250
How does the cross‑option method differ from the buy‑and‑sell
method of partnership protection?
It comprises an option to purchase the deceased partner’s share rather
than a binding contract; as a consequence, the deceased’s family or heirs
are deemed to receive business assets rather than cash, so business relief
from inheritance tax can be claimed.
For which of the following borrowers might a fixed‑rate mortgage be most suitable?
a) Ruth, who feels that interest rates will stay the same for
the next few years.
b) Sean, who feels that lenders should never charge
arrangement fees.
c) Aditya, who is convinced that interest rates will fall sharply
in the short term.
d) Nigel, who believes that interest rates will rise significantly
in the near future.
d) Nigel – a fixed‑rate mortgage is most suitable for ensuring that, over a
specific period, repayments do not increase as a result of interest‑rate
rises.
Which one of the following repayment vehicles would be
suitable for a client who wants an interest‑only mortgage, but
insists that the product must guarantee to pay off the mortgage
at the end of the term?
a) Full with‑profits endowment.
b) Low‑cost endowment.
c) ISA.
d) Unit‑linked endowment.
a) The sum assured on a full with‑profits endowment is set at a level
equal to the mortgage debt so, as long as payments are maintained, it
will guarantee to repay the mortgage at the end of the term.
If the cost of living is rising, what is likely to be the main priority of a customer making an investment?
a) To avoid incurring any further income tax liability.
b) To protect money against the effects of inflation.
c) To be able to access it immediately.
d) To invest money securely.
b) To protect money against the effects of inflation.
If the rate of inflation is 2.5 per cent, what yield must an investor obtain on their deposit account in order to achieve a
real return of 3 per cent?
a) 0.5 per cent.
b) 2.5 per cent.
c) 5.5 per cent.
c) 5.5% (5.5 – 2.5 = 3%)
9) Nina is a basic‑rate taxpayer. She pays £162 pm by direct debit into her personal pension plan. How much is actually invested
in her plan each month including tax relief?
a) £194.40.
b) £202.50.
c) £283.50.
d) £270.00.
b) £202.50. The £162 is the ‘net’ contribution. To work out the ‘gross’
contribution, divide the net contribution by 80 and multiply by 100 (do
not add 20 per cent to the net contribution).
£162 ÷ 80 × 100 = £202.50
What rule does HMRC apply in relation to gifts with reservation?
If a donor receives any benefit from a gifted asset, the asset is treated for IHT purposes as remaining in the donor’s estate.
