Unit 6 – Topic 22 Flashcards
Other repayment vehicles for interest-only mortgages
When comparing a Help To Buy ISA with a Lifetime ISA, which of the following is true? (22.1.2)
A. The overall bonus on a Help To Buy ISA is larger
B. Only the Help To Buy ISA can be used for a house purchase deposit
C. The annual allowance on a Lifetime ISA is larger
D. They can both be taken out as stocks and shares ISAs
C. The annual allowance on a Lifetime ISA is larger
The Government bonus payable on a Lifetime ISA is larger than the Help-To-Buy ISA.
Not A = The overall possible bonus on Help-To-Buy ISA is £3,000, which is lower than a LISA
Not B = Both schemes can be used to build a deposit for house purchase
Not D = The Help-To-Buy ISA is only available as a cash account
Meghan opened a Help To Buy ISA and made her first contribution of £1,150 on July 1st 2017; she then made 20 regular payments of £100 a month, by which time she had earned £150 interest and wanted to use her fund towards buying a new home. How much in total would her ISA provide towards the purchase ? (22.1.2)
A. £3,150.00
B. £3,300.00
C. £4,125.00
D. £6,650.00
C. £4,125.00
Unlike the LISA, a Help-To-Buy ISA will also pay the 25% bonus on interest, so Meghan
would have access to funds of £4,125, made up of the following :
£1,150 single contribution + £2,000 regular + £150 interest = £3,300 + 25% bonus = £4,125
With an interest-only mortgage, what potential tax benefit could be obtained by choosing a unit trust or an OEIC as the repayment vehicle ? (22.2.1)
A. The fund itself is exempt from capital gains tax.
B. Tax relief on contributions
C. The borrower would have no further tax to pay on the proceeds.
D. No income tax liability on dividend income
A. The fund itself is exempt from capital gains tax.
Yes A = Unit trust and OEIC funds are CGT-exempt, but the investor could have a liability
Not B = There is no tax relief on contributions to unit trusts or OEICS
Not C = A capital gains tax liability could arise on the disposal of a unit trust or OEIC
Not D = Dividend income paid in excess of the client’s dividend allowance is taxable.
Kate has a flexible cash ISA, with a balance of £40,000. In June 2020 she paid in £10,000. and in December 2021, she withdrew £30,000 to cover a short-term need. If she repaid
the £30,000 in the same tax year, what ISA allowance, if any, did she have remaining for the 2021/22 tax year ? (22.1.1)
A. Nil
B. £10,000
C. £20,000
D. £40,000
B. £10,000
Because Kate has a flexible cash ISA and because she has put the £30,000 back into the account, she still has £10,000 of her contribution allowance left to use.
Which of the following statements applies to both Help to Buy and Lifetime ISAs ? (22.1)
A. Both can run until the account holder reaches 60, or buys their first property.
B. Investor’s minimum age must be 18.
C. The bonus can be paid at exchange of contracts, to form part of the deposit.
D. Both can be used for the purchase of a property in London, up to the value of £450,000
D. Both can be used for the purchase of a property in London, up to the value of £450,000
Not A = Help To Buy ISAs can only be used by those buying their first property
Not B = Help To Buy ISA minimum age is 16
Not C = The bonus on a Help To Buy ISA is only payable at completion, the bonus on a Lifetime
ISA can be payable at exchange of contracts.
Raj would like to use his personal pension to repay his interest-only mortgage loan when he reaches retirement. He would also like to arrange a guaranteed fixed income for life in his retirement years. Which of the following options would be the most suitable to meet his objectives ? (22.3.2)
A. Take the maximum pension commencement lump sum, plus flexi-access drawdown
B. Uncrystallised funds pension lump sum, with the entire fund withdrawn.
C. Take the maximum pension commencement lump sum and purchase a life annuity with the remainder
D. Uncrystallised funds pension lump sum, with a series of smaller lump sums taken.
C. Take the maximum pension commencement lump sum and purchase a life annuity with the remainder
Not A = Flexi-access drawdown would not give Raj a guaranteed income for life
Not B = Only 25% of the sum will be tax-free. The remaining 75% would be taxed as earned
income.
Not D = 25% of each lump sum drawn would be tax-free, the remainder taxed as earned
income.
Yes C = Provided the lump sum doesn’t exceed his lifetime allowance, it will be tax-free and
should be suitable to repay the mortgage loan.
A life annuity can be purchased with the
remaining 75% of his fund and this will buy him a guaranteed income for life.
Bob, a higher-rate taxpayer, has taken out a personal pension to repay his interest-only mortgage. He pays £400.00 from his bank account each month ; what gross amount is
invested for him each month by his pension provider ? (22.3.1)
A £400.00
B £480.00
C £500.00
D £667.00
C £500.00
Bob’s net payment of £400.00 is ‘grossed-up’ by 20% to £500.00. To gross up at 20% divide
the net amount by 0.8. £400 ÷ 0.8 = £500. If he remains a higher-rate taxpayer, Bob can
reclaim a further 20% (£100) of the gross pension contribution as monthly tax relief when he completes his self-assessment.
Henry died in July 2022, with an ISA fund valued at £25,000 which was left in his will to his son Ned. What was the maximum ISA allowance available to Henry’s widow in the 2023/24 tax year ? (22.1.3)
A. £15,240
B. £20,000
C. £25,000
D. £45,000
D. £45,000
The surviving spouse or civil partner can claim an ‘additional permitted subscription’ (APS).
This allows their own ISA allowance to be increased by the higher of the value of the
deceased’s ISA fund at the time of their death. The APS applies even if the original ISA holder
left their ISA assets to someone else.
Phil is aged 30 and planning to take out a personal pension to repay his interest-only mortgage loan. Which of the following statements is incorrect? (22.3.2)
A. He will not be able to access his pension benefits until he’s 57
B. He will be able to access 25% of his pension fund as a tax-free lump sum.
C. He will have to retire in order to receive his pension benefits.
D. He will be able to take a tax-free cash sum to repay his mortgage and delay taking an income until a later date.
C. He will have to retire in order to receive his pension benefits.
Phil does not have to be retired in order to draw his pension benefits.
Jane, aged 27, wishes to arrange an interest-only mortgage, which she intends to pay offby the age of 52, 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 can. She has a savings account to build her deposit, but no other arrangements. Which product would best meet her needs as a mortgage repayment vehicle?
A. A low-cost endowment
B. OEIC
C. Personal pension
D. ISA
D. 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. An OEIC would be a possible option,
but the proceeds are taxable. The tax benefits of an ISA make it the most suitable choice.
Jane took out a Help To Buy ISA in 2018 which she is still paying into, but is now interested in opening a Lifetime ISA. Can Jane contribute to these two ISAs at the same time? (22.1.3)
A. Yes, the Lifetime ISA forms part of the overall ISA allowance and can run alongside a Help To Buy ISA.
B .No, but the Help To Buy ISA could be transferred to the Lifetime ISA
C .No, only if Jane was purchasing a second property.
D. It’s possible, but contributions to the Help to Buy ISA would have to stop.
A. Yes, the Lifetime ISA forms part of the overall ISA allowance and can run alongside a Help To Buy ISA.
The planholder can contribute to both a Lifetime ISA and their Help to Buy ISA. If
contributions are made to both, only the bonuses from one plan can be used to buy a property
June, aged 37, took out a Lifetime ISA and contributed £15,000. The current value is £18,000 and she has withdrawn all of the balance to buy a car. What penalty will June face?
(22.1.3)
A. £750
B. £900
C. £3,750
D. £4,500
D. £4,500
If funds are withdrawn before the age of 60 for any reason other than serious ill-health or
buying a first property, a 25 per cent penalty will apply to the amount withdrawn, including
growth. In June’s case she faces a penalty of 25% x £18,000 = £4,500
Joanne contributes to a Help To Buy ISA and also a Lifetime ISA. She is now purchasing her first property. Can she receive a bonus from both of the ISAs? (22.1.3)
A. Yes, Joanne can access money from both schemes, with bonuses.
B. No, only the bonuses from one of the ISAs can be used.
C. Yes, providing both of the ISAs are held in cash accounts.
D. Only if she has held both ISAs for more than 12 months.
B. No, only the bonuses from one of the ISAs can be used.
If contributions are made to both, only the bonuses from one plan can be used to buy a
property. If the Help to Buy bonus is claimed to buy a property, the Lifetime ISA bonus can be claimed when the investor reaches the age of 60.
Jon contributes £200 a month to the Help To Buy ISA he arranged in 2017. What is the maximum, if anything, he can contribute annually to a Lifetime ISA in the same tax year? (22.1.3)
A He can’t contribute to both schemes in the same tax year
B £ 1,600
C £ 4,000
D £ 5,000
C £ 4,000
The Lifetime ISA contributions are part of the overall ISA limit, which means that the saver
could pay the balance of their ISA allowance into other ISAs, including a stocks and shares
ISA. Up to £4,000 can be paid in each tax year.
