A UK resident individual dies, leaving their entire estate of £450,000 to their child. Their will specifies that 15% of the net estate should be gifted to a registered charity. How is the Inheritance Tax (IHT) rate affected?
A.
The IHT rate remains at 40% as the gift is less than £325,000.
Not quite
The nil rate band amount is separate from the criteria for the reduced IHT rate, which is based on the percentage of the estate gifted to charity.
B.
The IHT rate remains at 40% as the gift must be a specific monetary amount, not a percentage.
C.
The IHT rate is reduced to 0% on the entire estate due to the charitable donation.
D.
The IHT rate is reduced to 36% because more than 10% is left to charity.
d
What is the key characteristic of a ‘with-profit’ whole of life policy?
A.
The policy value grows through the addition of annual and terminal bonuses, which are not guaranteed.
B.
Premiums are invested directly into units of a chosen fund, and the value fluctuates daily.
C.
The premium is reviewed and increased every year based on stock market performance.
D.
The sum assured is guaranteed to increase in line with the Retail Price Index (RPI).
Explain
A
hich type of term assurance policy is specifically designed to cover a liability that reduces over time, such as a repayment mortgage?
A.
Convertible Term Assurance
B.
Level Term Assurance
C.
Increasing Term Assurance
D.
Decreasing Term Assurance
d
Under the Consumer Insurance (Disclosure and Representations) Act 2012, how must an insurer treat a claim where the policyholder made an ‘innocent’ misrepresentation?
A.
The insurer can reject the claim but must refund all premiums paid.
B.
The insurer can void the policy from inception and retain all premiums.
Not quite
Voiding the policy from inception is the remedy for deliberate or fraudulent misrepresentation.
C.
The insurer must pay the claim in full.
D.
The insurer can apply a proportionate remedy, such as reducing the claim amount.
Explain
c
what does the ‘deferred period’ on an Income Protection policy refer to?
A.
The period during which pre-existing medical conditions are excluded from cover.
B.
A period at the start of the policy where the policyholder can cancel without penalty.
C.
The maximum period for which the policy will pay out benefits.
D.
The initial period after a claim is made during which no benefit is paid.
d
A ‘Family Income Benefit’ policy is a type of which broader category of life assurance?
A.
Decreasing Term Assurance
B.
Whole of Life Assurance
.
C.
Unit-Linked Assurance
D.
Level Term Assurance
a
Which of these insurance policies is a long-term contract where the insurer cannot cancel the policy or increase premiums, even after multiple claims, as long as premiums are paid?
A.
Private Medical Insurance (PMI)
B.
Personal Accident and Sickness (PAS) insurance
C.
Income Protection (IP) insurance
D.
Accident, Sickness and Unemployment (ASU) insurance
c
what type of life assurance is most commonly recommended to protect a capital and interest repayment mortgage?
A.
Family Income Benefit
B.
Level Term Assurance
C.
Whole of Life Assurance
D.
Decreasing Term Assurance
Explain
Previous
d
What is an Uncrystallised Funds Pension Lump Sum (UFPLS)?
A.
A tax-free lump sum of up to £268,275 available from age 55.
B.
A way of taking a one-off withdrawal from a pension pot where 25% of the sum is tax-free and the remaining 75% is taxed as income.
C.
The maximum amount of income that can be drawn from a capped drawdown plan.
D.
A lump sum death benefit paid to a nominee if the member dies before age 75.
Explain
b
Under what circumstances can an individual make withdrawals from a Lifetime ISA before the age of 60 without incurring a 25% withdrawal charge?
A.
To fund a new business start-up.
B.
In any circumstances, as long as they repay the amount within the same tax year.
C.
To purchase their first home, provided certain conditions are met.
D.
To pay for university tuition fees.
Explain
Previous
c
An investor has an onshore investment bond. They are a higher-rate taxpayer. If a chargeable gain occurs, what rate of income tax is payable on the gain?
A.
0%, as only additional-rate taxpayers have a liability.
B.
40%, which is their marginal rate of income tax.
C.
33.75%, which is the higher rate for dividend income.
D.
20%, because the bond is treated as having already paid basic rate tax.
Explain
d
What does the 5% tax-deferred withdrawal allowance on an investment bond permit?
A.
To reduce the final chargeable gain by 5% for every year the bond has been held.
Not quite
The 5% allowance relates to withdrawals during the bond’s life, not a relief applied at the end.
B.
To withdraw up to 5% of the original investment amount each year, for up to 20 years, without an immediate tax charge.
C.
To receive a government bonus of 5% on top of any investment growth each year.
D.
To withdraw 5% of the fund value each year completely free of tax.
Explain
Previous
b
Which of the following is a key feature of an offshore bond compared to an onshore bond?
A.
The underlying fund of an offshore bond benefits from ‘gross roll-up’, as no tax is paid within the fund.
Right answer
This is a primary advantage. Since no internal tax is deducted from the investment growth, the fund can compound more quickly than an onshore fund, which is subject to internal taxation.
B.
Offshore bonds can only be held by non-UK residents.
C.
Offshore bonds offer a higher tax-deferred withdrawal allowance of 10% per year.
D.
All gains on an offshore bond are completely tax-free for UK resident investors.
Not quite
Gains are fully subject to income tax at the investor’s marginal rate upon a chargeable event, and there is no 20% tax credit.
Explain
a
With regard to Inheritance Tax (IHT), what happens to a person’s unused nil rate band (NRB) upon their death?
A.
It is automatically applied to reduce the IHT on lifetime gifts made in the last seven years.
It can be transferred in full to any nominated beneficiary, such as a child.
C.
It is lost and cannot be used by anyone else.
D.
It can be transferred as a percentage to a surviving spouse or civil partner.
d
What does a Family Income Benefit (FIB) policy typically pay out upon the death of the life assured?
A.
A regular income from the date of death until the end of the policy term.
Right answer
FIB is designed to replace lost income, paying a regular amount to the beneficiaries for the remainder of the policy’s original term.
B.
A lump sum that has decreased in line with a repayment mortgage.
C.
A single lump sum equal to the original sum assured.
Not quite
This payout structure is characteristic of a level term assurance policy, not a Family Income Benefit policy.
D.
A regular income for a fixed period of five or ten years from the date of death.
A
