Topic 22 Flashcards
Other repayment vehicles for interest‑only mortgages
Jason, aged 60, would like to arrange a pension-linked mortgage and has yet to start any pension arrangements. Based on his income of £28,000, what is the maximum gross contribution he could pay into a personal pension this tax year and receive full tax relief?
The:
a. amount is unlimited.
b. higher of £3,600 or the current annual allowance.
c. higher of £28,000 or the current annual allowance.
d. lower of £28,000 or the current annual allowance.
d. lower of £28,000 or the current annual allowance.
Which of the following is true of an individual savings account (ISA) mortgage?
Cash ISAs are the most sensible type of ISA for mortgages.
It is possible to arrange a joint ISA to repay a mortgage.
An ISA can be cashed in at any time to repay the mortgage.
An ISA can be cashed in at any time to repay the mortgage.
Cash ISAs offer no prospect of capital growth so are not suitable for mortgage repayment. ISAs can only be arranged on a single-life basis, although joint buyers could each arrange an ISA in their sole name.
Which of the following is true of a Help to Buy ISA?
a) The minimum bonus payable is £1,600.
b) Property purchase must be completed by 1 December 2030.
c) The proceeds can be used to pay the deposit.
d) A penalty applies on withdrawals before age 60, other than for house purchase.
b) Property purchase must be completed by 1 December 2030.
The minimum bonus is £400. The proceeds are paid on completion, so cannot be used for a deposit. Money can be withdrawn at any time without penalty.
The bonus on a Lifetime ISA is calculated as a percentage of contributions made before the investor’s:
a) 50th birthday.
b) 60th birthday.
c) property is purchased.
a) 50th birthday.
The bonus on a Lifetime ISA is calculated as a percentage of contributions made before the investor’s 50th birthday.
For distributions from a unit trust to be treated as interest, the unit trust must have:
a) a fund value below £1m.
b) at least 60% of the fund invested in cash or fixed-interest investments.
c) no more than 50% of the fund invested in stocks or shares.
b) at least 60% of the fund invested in cash or fixed-interest investments.
A unit trust must have at least 60% of the fund invested in cash or fixed-interest investments for distributions from a unit trust to be treated as interest.
Jason is 25 and a basic-rate taxpayer, and is considering buying his first property using a £100,000 pension mortgage. What is the most likely reason for this not to be a viable option?
a) The term of the mortgage.
b) The annual allowance limit.
c) Annuity rates.
a) The term of the mortgage.
Jason is 25 and can take pension benefits from the age of 57. This would mean a mortgage term of at least 32 years, which may not be justifiable or desirable. The annual allowance limit would not affect Jason’s ability to fund the pension to the required level. Pension flexibility means that Jason would not be reliant on an annuity on retirement.
When taking benefits, which option would provide the most tax-efficient way for Jason to take cash from his pension plan to pay off the mortgage?
a) Uncrystallised funds pension lump sum (UFPLS).
b) Flexi-access drawdown.
c) Capped drawdown.
b) Flexi-access drawdown.
Flexi-access drawdown would allow Jason to take up to 25% of his pension fund tax free. He could leave the balance of the fund invested but would not have to take any income, which would avoid further tax until he needed income in retirement. UFPLS would enable Jason to take a lump sum to pay off the mortgage, but only the first 25% of the cash would be tax free, with the balance taxed as income. Capped drawdown is no longer a retirement option.
Nichelle’s annual earnings are £5,000 below the pension annual allowance and her employer is prepared to make a contribution to a personal pension. What is the maximum that Nichelle can contribute personally without facing any tax complications? An amount:
up to her earnings.
up to the annual allowance.
as much as she likes as long as her employer does not contribute.
up to her earnings.
Nichelle can make personal contributions up to her earned income without any tax implications. Her employer can contribute the balance up to the annual allowance without incurring any penalties for Nichelle.
A personal pension planholder dies at the age of 76, having not taken any benefits from his pension fund. Which of the following is true?
a) The fund will be subject to inheritance tax, but his beneficiaries will pay no tax on any lump sums or income taken from the balance of the fund.
b) The fund will not be subject to inheritance tax, but his beneficiaries will pay income tax on any lump sums or income they take from the fund.
c) The fund will not be subject to inheritance tax and any lump sums or income his beneficiaries take from the fund will be tax free.
b) The fund will not be subject to inheritance tax, but his beneficiaries will pay income tax on any lump sums or income they take from the fund.
Benefits from a pension fund are not subject to inheritance tax. If the planholder dies on or after their 75th birthday, any benefits taken by their beneficiaries will be subject to income tax at their marginal rate.
A couple wishing to arrange an interest‑only mortgage can arrange a joint ISA as the repayment vehicle.
True or false?
False. ISAs can be in single names only – but joint borrowers can have one each.
An individual cannot contribute to both a cash ISA and a Help to Buy ISA in a tax year.
True or false?
False. An individual may contribute to both a cash ISA and a Help to Buy ISA in a tax year, subject to overall ISA limits.
A Help to Buy ISA saver will need a minimum of £1,600 in the account to earn a bonus.
True or false?
True.
For a Lifetime ISA:
a) applicants must be under 50 to open an account.
b) the maximum annual bonus is £1,000.
c) a 20% early withdrawal penalty applies before age 60.
d) there is no limit on the price of a property purchased using the scheme.
b) the maximum annual bonus is £1,000.
The maximum annual bonus for a Lifetime ISA is £1,000. Applicants must be under 40 to open an account. The penalty for early withdrawal is 25% of the accumulated fund. There is a limit of £450,000 on properties bought using the scheme.
Which of the following is true in relation to personal pensions?
a) Individuals can pay in to a defined‑benefit pension or a defined‑contribution pension, but not both.
b) An individual using flexi‑access drawdown must take the available tax‑free cash in instalments.
c) It is possible to take the maximum tax‑free cash and delay taking an income until later.
c) It is possible to take the maximum tax‑free cash and delay taking an income until later.
Tanya is self-employed and wants to make a pension contribution that exceeds her earned income for the year by £5,000, but is below the annual allowance. The excess will be subject to a tax penalty.
True or false?
False. The maximum Tanya can pay in and gain tax relief is equal to her earned income, or the annual allowance if her income exceeds the allowance. If she pays in more than that, she will not receive tax relief on the excess but there will not be a penalty.
