U1: T5 - STATE BENEFITS AND HMRC TAX CREDITS Flashcards
What 2 ways can state benefits affect financial planning?
- The need for financial protection
- Entitlement to benefits.
1) State benefits can affect the need for financial protection. The amount of additional cover needed by a client can be quantified as the difference between the level of income or capital required and the level of cover already existing. Existing provision includes not only any private insurance that the client already has, but also any state benefits to which they or their dependents would be entitled.
2) Financial circumstances can affect entitlement to benefits. Certain benefits are means‑tested – in other words, the amount of benefit is reduced if the individual’s (or sometimes the household’s) income or savings exceed specified levels. This might mean, for example, that a financial plan that increased a person’s income or the value of their assets might be less attractive than it seemed at first sight, if it also had the effect of reducing entitlement to, for instance, Income Support.
Which form(s) of Employment and Support Allowance is/are means‑tested?
a) Contribution‑based ESA only.
b) Income‑based ESA only.
c) Both contribution‑based and income‑based ESA.
d) Neither contribution‑based nor income‑based ESA.
The correct answer is b).
Income‑based ESA is means‑tested;
Contribution‑based ESA is based on National Insurance contribution record so is not means‑tested.
Jane and John have two young daughters and claim Child Benefit. John earns £48,000 per year and Jane earns £57,000 per year. If the threshold is £50,000 they will be entitled to:
a) no Child Benefit as one of their incomes is over the threshold.
b) 100 per cent of Child Benefit as one of their incomes is under the threshold.
c) a reduced amount of Child Benefit as one of their incomes is over the threshold.
d) an increased amount of Child Benefit as one of their incomes is under the threshold.
The correct answer is c).
Tax is charged through self-assessment for any income above the threshold, reducing the amount of Child Benefit received.
A major difference between the basic state pension and the new state pension is:
a) The basic state pension is paid at a later age than the new state pension.
b) The new state pension is paid at a later age than the basic state pension.
c) The new state pension has no facility for an individual to claim a state pension based on National Insurance contributions paid by the spouse or civil partner.
d) Lower levels of National Insurance contributions are required to claim a full new state pension.
The correct answer is C.
With the basic state pension it is possible to claim a Category B pension based on the NICs of a spouse or civil partner, but this is not possible with the new state pension.
Why is it important for a financial adviser to know about state benefits?
Financial advisers need to understand what state benefits a person is entitled to or already claiming in order to give appropriate financial advice.
For instance, when working out the level of life assurance cover that a family needs, the income that would be available from state benefits if a family wage earner were to die has to be taken into account.
Once Universal Credit is fully implemented, parents who are eligible for Child Benefit will have to claim Universal Credit instead.
True or false?
False.
Universal Credit will eventually replace Child Tax Credit, not Child Benefit.
Which of the following is not a feature of Income Support?
a) It is only available to claimants who have made National Insurance contributions.
b) It is available for claimants aged between 16 and the qualifying age for Pension Credit.
c) Benefits are tax‑free.
d) Both income and savings are subject to means testing to determine eligibility.
The correct answer is A - this statement is untrue.
Income support is available to people who have not made National Insurance Contributions.
James has been working in IT support for 12 years. His current job is a fixed‑term contract and ends next month. Assuming James has made NICs throughout his working life, what benefit is he likely to be able to claim while he is unemployed?
a) Working Tax Credit.
b) Income Support.
c) Contribution‑based Jobseeker’s Allowance.
d) Employment and Support Allowance.
Answer is C.
Contribution‑based Jobseeker’s Allowance.
Aliyah has been working for Abbots Transport for 16 weeks. She is 24 weeks pregnant.
Which of the following state benefits may she be entitled to?
a) Statutory Maternity Pay.
b) Income Support.
c) Child Tax Credit.
d) Maternity Allowance.
Answer is D.
Maternity Allowance. She is not entitled to Statutory Maternity Pay because she will not have been with her employer for 26 weeks by her qualifying week.
When is the earliest that Aliyah can begin claiming this benefit?
Eleven weeks before the baby is due.
Malcolm, who is 42 and self‑employed, has fallen ill and cannot work.
Which benefit might he be entitled to?
a) Disability Living Allowance.
b) Statutory Sick Pay.
c) Employment and Support Allowance.
d) Attendance Allowance.
Answer is C.
Employment and Support Allowance. He cannot claim Statutory Sick Pay because he is self-employed.
Lucy earns £52,000 per year and her partner Howard has an annual salary of £29,000. Let’s say the threshold for Child Benefit is £50,000. They have three children, one at primary school and two at secondary school; their eldest son, Ethan, is 18 and studying for three A levels.
For how many children are Lucy and Howard able to claim Child Benefit?
a) Two: they cannot claim for Ethan because he is over 16.
b) All three, because Ethan is still in full‑time education.
c) None, because Lucy earns more than £50,000 a year.
d) None, because their combined household income exceeds £50,000 per year.
Answer is B.
All three: they will be able to claim for Ethan up until his twentieth birthday while he remains in full‑time education.
Ian retired in July 2021 at the age of 66. He had made NICs for 33 years while he was working but he had had a career break of three years to care for his sick partner.
Is Ian eligible for a full, new state pension?
a) No, because he was not continuously employed throughout his working life.
b) No, because he retired too early to claim the new state pension.
c) Yes, because he had paid NICs for more than 30 years.
d) Yes, because he was credited with NICs while he was a carer.
Yes.
Although 35 years’ NICs are needed to be eligible for the full new state pension, Ian would have been credited with NICs for the three years that he was a carer.
Lydia is 22 and has just begun a new job on a permanent, full‑time contract. Her employer will offer her the opportunity to contract‑out of the state second pension.
True or false?
False.
The state second pension is available only to those who reached state pension age before 6 April 2016. Lydia’s National Insurance contributions will build entitlement to the new state pension, which has no additional earnings‑related element, therefore it is not possible for Lydia to choose to contract out.
Who pays Statutory Sick Pay (SSP?)
Employers to employees
What is the maximum time Statutory Sick Pay can be paid?
28 days from employers to employees
To be eligible for SSP, you must?
a) be off for 3 days or longer
b) be off for 4 days or longer?
c) be off for 5 days or longer?
b) Off for 4 days or longer
To be eligible for SSP, you must?
a) Have average weekly earnings less than the level which NICs are payable
b) Have average weekly earnings exceed the level which NICs are payable
b) Average weekly earnings exceed the level at which NICs are payable
Which deductions are SSP payments subject to?
Income tax and National Insurance deductions
What are the 2 forms of Employment and support allowance (ESA)?
1) Contribution based ESA
2) Income based ESA
Which of the following is means-tested?
a) Contribution based ESA
b) Income based ESA
Answer is b) Income based ESA
Which of the following ESA’s depends on a person’s national insurance record?
a) Contribution based ESA
b) Income based ESA
Answer is a) Contribution based ESA
Which of the following ESA’s are taxable?
a) Contribution based ESA
b) Income based ESA
Answer is a) Contribution based ESA are taxable
Income based ESA is not taxable
What is the eligibility of the Employment & Support Allowance (ESA) based on?
The Work Capability Assessment
If someone carries out the Work Capability Assessment and is deemed capable to work - where are they then placed?
Work-related activity group
If someone carries out the Work Capability Assessment and is deemed NOT capable to work - where are they then placed?
Support group
Lilian is 75 and in poor health. Her daughter Alison looks after her for several hours each day. Subject to meeting the eligibility criteria, Alison will receive:
a) Personal Independence Payment.
b) Disability Living Allowance.
c) Carer’s Allowance.
d) Attendance Allowance.
c) Carer’s Allowance.
In relation to Support for Mortgage Interest (SMI), the loan:
a) payments cover capital and interest on the mortgage.
b) payments are made direct to the lender.
c) is secured by a first charge on the property.
d) must be repaid within 24 months from the end of a claim.
b) payments are made direct to the lender.
