section 2 - characteristics , risks, behaviors and tax (23Qs)

Question 1

Life Assurance

with profits policy summary

Answer 1

• performance depends on the assets held in the fund
• return is dependant on bonuses being added each year
• terminal bonus are paid when policy matures

Question 2

With-profits policy?

What is the MVR/MRA?

Answer 2

• applied to prevent value leaving the fund to exceed the value of the underlying assets.

in times of negative markets

Question 3

What does smoothing do?

Answer 3

• reduces risk by preserving bonuses

Question 4

with profits

Way to gauge whether an investment is likely to be profitable?

Answer 4

• the success of the company
• assets versus liabilites (Free asset ratio)

Question 4

unit linked

Pound cost averaging

Answer 4

This basically means that when unit prices are low, you buy more for your money, when prices are high
you get less but over the period of, say, 12 months the
average price is achieved.

Question 5

Big Positive of Unit Linked Funds

Answer 5

• money can be moved
  from fund to fund within the wrapper (no CGT on disposal)

Question 6

regular premium plan qualifying plan amount?

Answer 6

the government introduced a limit of £3600 per annum, per person on the contributions to qualifying policies

Question 7

single premium, non-qualifying whole of life plans a.k.a?

Answer 7

BONDS

Question 8

What is the difference between Guaranteed Income bonds & Guaranteed growth bonds?

Answer 8

• guarantee being a set capital return
  at maturity rather than an income.

Question 9

high income bonds

Answer 9

• Bond pays out a high level of income.
• Return of the original investment will depend on the performance of an index.

Question 10

TAXATION OF ONSHORE (UK) LIFE
CONTRACTS
gains are taxed at…

Answer 10

20%
(with gains on
gilts and corporate bonds being exempt).

Question 11

What is top slicing?

Answer 11

• for qualifying policies
• used to reduce tax liability
• gain is divided by complete number of policy years

Question 12

Withdrawals from bonds

Answer 12

• partial surrender
• chargeable event
• 5% partial withdrawal permittable per year (tax deferred income)

Question 13

time apportionment relief

Answer 13

• offshore policy
• if policy holder has been outside uk during policy
• dived gain by years spent in UK

Question 14

what is gross roll up?

offshore bonds

Answer 14

• tax is deffered till a chargeable event
• benefit from compounding on the gross (pre-tax) amount,

Question 15

second hand policies

traded endowment

Answer 15

• sellor doesnt need the policy
• doesnt want to surrender, it would mean the loss of a potential bonus on maturity.

Question 16

traded endowments tax implications

Answer 16

• original policy holder sells policy to third party
• they maintain premiums
• Provided the policy has been running for more
  than 10 years or ¾ of the term (the shorter) no tax will be
  due on the policyholder.
• becomes non qualifying is sale takes place within this term

Question 17

Hwat is Smoothing?

Answer 17

retention of bonuses in with profits policies.

Question 18

how can CGT