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MORT > U6: T22 - OTHER REPAYMENT VEHICLES FOR INTEREST ONLY MORTGAGES > Flashcards

U6: T22 - OTHER REPAYMENT VEHICLES FOR INTEREST ONLY MORTGAGES Flashcards

1
Q

A couple wishing to arrange an interest‐only mortgage can arrange a joint ISA as the repayment vehicle. True or false?

A

False. ISAs can be in single names only – but joint borrowers can have one each.

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2
Q

An individual cannot contribute to both a cash ISA and a Help to Buy ISA in a tax year. True or false?

A

In principle this is true, but if the manager offers a ‘portfolio’ ISA it may be possible to contribute to both, subject to overall cash and Help to Buy limits.

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3
Q

A Help to Buy ISA saver will need a minimum of £1,600 in the account to earn a bonus. True or false?

A

True

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4
Q

Jason starts to contribute to a Help to Buy ISA, paying in £1,000 as an initial deposit and £100 every month. He plans to buy a property three years later, when his grandparents have promised him a lump sum to help with the deposit. Assuming he maintains his contributions for three years, and ignoring any interest earned, how much bonus will his Help to Buy ISA give him towards his deposit?

a) £900.
b) £1,150.
c) £1,500.
d) £3,000.

A

b) £1,150.

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5
Q

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.

A

c) It is possible to take the maximum tax‐free cash and delay taking an income until later.

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6
Q

Tanya earns £27,500 a year from her job as a contracts manager. The maximum that can be paid into her pension annually is £27,500. True or false?

A

False. The maximum Tanya can pay in and gain tax relief is £27,500, but her employer could pay a further £12,500 to top up her contributions to the £40,000 annual allowance.

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7
Q

Jane, aged 28, wishes to arrange an interest‐only mortgage, which she intends to pay off by the age of 53, although she would like to do so earlier if she has sufficient funds. She will be able to make regular contributions to a repayment vehicle but also intends to make additional payments from her quarterly bonus scheme when she feels able to do so. Other than a savings account for her deposit, she has no other investments. Which product from those below would best meet her needs as a repayment vehicle?

a) A stocks and shares ISA.
b) A with‐profits endowment.
c) A personal pension.
d) A unit trust.

A

a) A stocks and shares ISA.

An ISA can accept irregular payments and can be cashed in at any time. A with‐profits endowment cannot accept ad‐hoc payments and is not designed to be cashed in early. A pension cannot be accessed until age 55 at the earliest. A unit trust would be a good alternative, but the tax benefits of an ISA make it more suitable.

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8
Q

Kevin is a basic‐rate tax payer and has a pension fund of £500,000 and an interest‐only mortgage of £150,000. What is the maximum amount of cash he could take from his pension without potentially incurring a tax bill?

a) £125,000.
b) £150,000.
c) £200,000.
d) £500,000.

A

a) £125,000.

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9
Q

Can a lender gain legal or equitable rights over an endowment?

A

Yes

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10
Q

Can the lender can gain no legal or equitable rights over an ISA?

A

No

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11
Q

What is a ‘flexible ISA’?

A

Allows the ISA holder to withdraw money from the ISA and then ‘replace’ it later in the tax year.

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12
Q

The cash ISA is available to those aged X or older.

A

16 years and older

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13
Q

Help to Buy and Lifetime ISAs can be flexible ISAs. True or false

A

False. Help to Buy and Lifetime ISAs cannot be flexible ISAs

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14
Q

Flexibility in an ISA applies to:

A) Cash
B) the investments

A

A) Cash

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15
Q

However, if an ISA provider offers a ‘portfolio’ ISA, what does it mean?

A

It may be possible to contribute to both a cash ISA and a Help to Buy ISA in the same tax year, subject to the overall cash and Help to Buy ISA limits.

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16
Q

Which of the following two ISAs is paid to the conveyancer at completion?

A) Help-to-buy ISA
B) Lifetime ISA

A

A) Help-to-buy ISA

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17
Q

Which of the following two ISAs is paid to the conveyancer at contract exchange?

A) Help-to-buy ISA
B) Lifetime ISA

A

B) Lifetime ISA

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18
Q

The government bonus of a HTB ISA is paid to the owner. True or false

A

False. It is paid to the buyers conveyancer

19
Q

After an ISA holder passes away, the additional permitted subscription must be claimed by when?

A

The APS allowance must be claimed by the surviving spouse and is available until the later of three years after the date of death or 180 days after administration of the estate is complete.

20
Q

Life cover is included in ISA investments. True or false

A

False. No life cover is included

21
Q

Unit trusts and OEICs are pooled (or collective) investments. True or false

A

True

22
Q

Unit trusts are open-ended (i.e. there is no limit on the number of units/shares that can be issued). True or false

A

True

23
Q

Which of the following are managed by an authorised corporate director (ACD)?

A) Unit Trust
B) OEIC

A

B) OEIC

24
Q

Which of the following are managed by a fund manager?

A) Unit Trust
B) OEIC

A

A) Unit Trust

25
Q

If a fund has more than 60% of its assets in cash and fixed income how is it’s tax treatment?

A) Income
B) Interest (not taxed at source)

A

B) Interest (not taxed at source)

If the fund has more than 60 per cent of its money in cash and fixed interest investments, income paid out is regarded as interest and is paid without tax deducted at source. Distributions are taxed under the savings regime as interest, including the availability of the personal savings allowance.

26
Q

If a fund is share based how is it’s tax treatment?

A) Income
B) Interest (not taxed at source)

A

A) Income

If the fund is share based, income may be paid out as dividends, which will be subject to the income tax regime for dividends, including the availability of the annual dividend allowance.

27
Q

What is the maximum age that a pension can be arranged for someone?

A) 65
B) 70
C) 75

A

C) 75

28
Q

Define threshold income.

A

Threshold income is total income less personal gross contributions to registered pension schemes.

29
Q

Define adjusted income.

A

Adjusted income is total income plus any employer contributions to a registered pension scheme.

30
Q

A person’s lifetime allowance (LTA) is unit linked. True or false

A

False. It is index linked

31
Q

In terms of mortgage repayment, what is likely to be the most efficient pension access method of providing the required lump sum?

A

Flexi-access drawn down (FAD)

32
Q

At what age of death can a pension be passed to beneficiaries tax-free?

A) Death before 75
B) Death after 75

A

A) Death before 75

33
Q

Which of the following is true of an individual savings account (ISA) mortgage?

A) Cash ISAs are the most sensible type of ISA for mortgages.
B) It is possible to arrange a joint ISA to repay a mortgage.
C) An ISA can be cashed in at any time to repay the mortgage.

A

C) 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.

34
Q

Tim invested the full ISA allowance into unit trusts in a flexible stocks and shares ISA in July 202X and held the proceeds as cash in his ISA until September 202X, when he withdrew the cash. In November 202X he was in a position to pay the £1,000 back into his ISA. What is his position?

A) Tim can reinvest the £1,000 as it is permitted to reinvest cash withdrawn from an ISA.
B) Tim cannot reinvest the cash as he has already invested the full ISA allowance for the tax year.
C) Tim may be able to reinvest the £1,000 at the discretion of the ISA provider.

A

A) Tim can reinvest the £1,000 as it is permitted to reinvest cash withdrawn from an ISA.

The annual limit applies to investment made in a tax year. If the planholder sells investments (shares, unit trusts, etc) bought with the current year’s subscription and withdraws the cash, they can ‘replace’ the money later in the tax year.

35
Q

Complete the following sentence. Anyone saving to buy their first home can start a Help to Buy ISA if they are:

A) aged 16 or over and start the ISA before 1 December 2019, and they must claim the bonus by 1 December 2030.
B) aged 16 or over and start the ISA before 1 November 2019, and they must claim the bonus by 1 December 2030.
C) aged 18 or over and start the ISA before 1 December 2019, and they must claim the bonus by 30 December 2030.

A

A) aged 16 or over and start the ISA before 1 December 2019, and they must claim the bonus by 1 December 2030.

36
Q

In order to receive a government bonus, a Help to Buy ISA investor must have saved at least:

A) £400.
B) £1,600.
C) £4,000.

A

B) £1,600.

The minimum bonus is £400, which means at least £1,600 must be saved, ie to receive 25% of £1,600.

37
Q

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

A) 50th birthday.

38
Q

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.

A

B) at least 60% of the fund invested in cash or fixed-interest investments.

39
Q

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

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.

40
Q

Which option when taking benefits 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.

A

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.

41
Q

Nichelle earns £45,000 a year and her employer is prepared to make a contribution of 3% of her salary to a personal pension. What is the maximum that Nichelle can contribute personally without facing any tax complications?

A) £38,650.
B) £40,000.
C) £43,650.

A

A) £38,650.

As Nichelle’s employer is prepared to contribute 3% (£1,350) a year, she will face a tax charge if she contributes more than £38,650, as the total contribution will exceed £40,000.

42
Q

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.

A

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.

43
Q

A couple wishing to arrange an interest‑only mortgage can arrange a joint ISA as the repayment vehicle. True or false?

A

False. ISAs can be in single names only – but joint borrowers can have one each.

44
Q

Tanya earns £27,500 a year from her job as a contracts manager. The maximum that can be paid into her pension annually is £27,500. True or false?

A

False. The maximum Tanya can pay in and gain tax relief is £27,500, but her employer could pay a further £12,500 to top up her contributions to the £40,000 annual allowance

MORT (30 decks)

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