1
Q
What is a fact-find and why is it important?
A
A fact-find is an integral part of the advice process that gives an approximate idea of a client’s income, outgoings, and spending habits. It is important because it helps identify if expenditure needs reallocating from one area to another
2
Q
What are the three categories of expenditure?
A
Essential Spending: Housing, insurance, council tax, utilities, childcare. Everyday Spending: Food, cleaning, travel. Occasional Spending: Clothing, entertainment, holidays, birthdays.
3
Q
What are the main debt priorities for clients?
A
- Mortgage Payments 2. Utilities and Council Tax 3. Credit Cards 4. Overdrafts 5. Personal Loans
4
Q
What is the role of Debt Management Plan (DMP) providers?
A
They consolidate multiple debts into one payment for a fee, but clients should be cautious as they may end up paying more in the long term.
5
Q
What alternative organizations provide free debt counseling services?
A
Citizens Advice, National Debtline, PayPlan, and StepChange Debt Charity.
6
Q
What is the last resort for managing unmanageable debts?
A
An Individual Voluntary Arrangement (IVA) or bankruptcy.
7
Q
How should clients with high debt approach their finances?
A
Draw up a list of debts, prioritize them, and contact lenders to discuss payment arrangements.
8
Q
What does the term “mortgage” technically refer to?
A
The security offered in exchange for a loan.
9
Q
What are the repayment types for mortgages?
A
- Capital and Interest. 2. Interest Only
10
Q
What is required for an interest-only mortgage to be offered?
A
Borrowers must pass a check demonstrating they have a strategy to repay the loan at the end of the term.
11
Q
What is a Cap and Collar mortgage?
A
A mortgage with interest rate limits: a maximum (cap) and a minimum (collar).
12
Q
What is a Fixed Interest mortgage?
A
A mortgage with a fixed interest rate for a set period.
13
Q
What is a Tracker mortgage?
A
A mortgage where the interest rate follows the Bank of England base rate, usually adjusting every 15 days.
14
Q
What is an Offset mortgage?
A
A mortgage linked to a current account where interest is charged on the net balance of the accounts.
15
Q
What is an Equity-Linked (Shared Appreciation) mortgage?
A
The lender takes a stake in the property, repaid upon sale, or the borrower can gradually buy back the stake.
16
Q
What is a Green mortgage?
A
A mortgage that rewards the borrower for buying an energy-efficient home.
17
Q
What is a Flexible mortgage?
A
Monthly payments can vary, early repayments can create a reserve, and large repayments are allowed.
18
Q
What are the two main types of equity release schemes?
A
- Lifetime mortgages. 2. Home reversion plans: Part of all of the hoem is sold for a lump sum or icnome, while the client retains the right to live in the home
19
Q
What are the 4 types of Lifetime Mortgages:
A
- Roll-Up Mortgage. 2. Fixed Repayment Lifetime Mortgage. 3. Interest Only Mortgage. 4. Home Income Plan
20
Q
What is a Roll-Up Mortgage?
A
The client gets a lump sum or income and pays the lender an agreed, higher amount when the home is sold.
21
Q
What is an Interest Only Lifetime Mortgage?
A
Client gets a lump sum and pays interest only on the loan. The amount borrowed is repaid when the home is sold
22
Q
What is a Home Income Plan?
A
Borrowed money is used to buy an annuity; part of the annuity pays interest, and the rest is retained by the client. The amount borrowed in repaid when the home is sold
23
Q
What is the No Negative Equity Guarantee?
A
Ensures borrowers don’t repay more than the home’s value when sold.
24
Q
What is the purpose of a Home Purchase Plan
A
To allow the client to purchase a home without paying interest. Which allows Muslims to buy a home without breaking Shira Law
25
What are the two types of Home Purchase Plan?
1. Ijara: Payments are held by the firm and used to buy a home and the end of the agreement 2. Diminishing Musharaka: Each payment increases the clien't share of the home, reduing rent payents over time
26
What are Sale and Rent Back Agreements?
Agreements where the client sells their home, but remains as tenants for a fixed period of time. Useful for those in financial difficulties.
27
What is the difference between a Business Buy-to-let and a Consumer Buy-to-let?
A Business buy-to-let is when a property was brought specifically to generate income, and is not regulated by the FCA. A Consumer Buy-to-let is for accidental landlords and is regulated by the FCA
28
What is the difference between structured and unstructured loans?
Unstructured loans are mortgages and commercial property loans. Interest rates can change over time and early repayments can be made. Structured loans are smaller loans, which have a fixed interest rate and no early repayments are possible
29
What are the most important factors in protection needs? (6)
1. Age 2. Dependants 3. Income (General rule is 10x income for death, 50-75% for illness 4. Financial Liabilities 5. Employment Status 6. Existing Cover
30
What are the 7 stages of the Personal Financial Life Cycle Model?
1. Childhood 2. Young Single 3. Young Partnered 4. Starting a Family 5. Family with older children 6. Post family/Pre-retirement 7. Retirement
31
What is the priority for a young single individual?
Build an emergency fund and consider income protection or critical illness insurance.
32
What happens financially during the "Starting a Family" stage?
Increased expenses due to childcare or reduced income if one parent stays home; need for protection and investment rises.
33
What is Term Assurance?
A lump sum paid upon death during the contract term, with premiums dependent on age and term length.
34
What is Decreasing Term Assurance best used for?
Protecting decreasing liabilities, such as a mortgage. Payout decreases towards the end of the term. Premiums will stay the same, but will generally be cheaper than term assurance over the whole contract
35
What is convertible life assurance?
When term assurance can be converted into a whole life policy at any time before the end of the term.
36
What is a Family Income Benefit Policy?
Similar to level term assurance but pays monthly or annual payments instead of a lump sum.
37
What is Increasable Term Assurance
premiums and payout increase over time to maintain value with inflation
38
What is Renewable Term Assurance
Term Assurance with short initial terms (3-5 years), and the client is guaranteed the option to renew regardless of health. Initial premium will be low but rates will increase with age for each renewal
39
What is a Whole of Life Policy?
Life cover with investment elements, including Non-Profit, With-Profit, and Flexible types.
40
What does Income Protection cover?
Provides income if the insured cannot work, typically 50-60% of income until return to work or retirement age.
41
What does Critical Illness Cover (CIC) provide?
A lump sum upon diagnosis of a specified illness, which can be used for income replacement, mortgage payments, or healthcare.
42
How is Personal Accident and Sickness Insurance different from Income Protection?
Includes lump sums for specific accidents and is typically capped at one or two years of benefit payments. Less questions to ask and easier to get insurance. Insurer has the right to cancel
43
What is Long-Term Care Insurance (LTCI)?
Insurance covering long-term care needs, either immediate or pre-funded (though pre-funded plans are no longer available).
44
What does Payment Protection Insurance (PPI) cover?
Loan or mortgage payments if the client becomes unemployed.
45
What is MPPI and what are the rules regarding it
Mortgage Payment Protection Insurance must meet minimum standards set by the Association of British Insurers, including paying after 60 days out of work, and paying for at least 12 months
46
What does the benefit cap apply to?
The total amounts of the following benefits for people aged 16 to retirement: Bereavement Allowance, Child Benefit, Child Tax Credit, Employment and Support Allowance, Housing Benefit, Incapacity Benefit, Income Support, Jobseekers Allowance, Maternity Allowance, Severe Disability Allowance, Universal Credit, Widowed Parent's Allowance
47
When does the benefit cap NOT apply?
If anyone in the household receives the following: Working Tax Credit, Adult Disability Payment, Armed Forces Compensation Scheme, Armed Forces Independence Payment, Attendance Allowance, Carers Allowance, Carer Support Payment, Child Disability Payment, Disability Living Allowance, Employment and Support Allowance, Guardians Allowance, Industrial Injuries Benefits, Personal Independence Payment, War or War Widow Pension
48
How much is the benefit cap?
Greater London with children: £2,110pm. Greater London without children: £1,414. Outside London with children: £1,835. Outside London no children: £1,229
49
What is Universal Credit?
A Standard Allowance with elements added for the following: Child Tax Credit, Housing Benefit, Income-based Jobseekers Allowance, Income-related Employment Support Allowance, Income Support, Working Tax Credit
50
What are the main aims of Universal Credit? (6)
1. Improve incentive to work 2. Make it easier to move in and out of 3. Easier to understand 4. Reduce poverty 5. Reduce fraud 6. Be more cost-effective to run
51
What is Child Benefit?
Universal, non-taxable benefit: £27pw for the first child, £17pw for additional children.
52
What is Maternity Allowance?
Contribution-based, non-taxable benefit: £184 per week (or 90% of weekly earnings if lower).
53
How are Statutory Maternity, Paternity, Adoption, and Shared Parental Pay structured?
Contributions-based and taxable. Mothers: First 6 weeks at 90% of weekly earnings, then £184 per week for the next 33 weeks. aternity: Paid for 2 weeks. Eligibility: Must have worked for an employer for at least 26 weeks before the 15th week prior to the baby's due date.
54
What benefits are available for unemployment and low incomes? (4)
1. Income Support: Now part of UC. 2. Jobseeker’s Allowance. 3. Statutory Redundancy Payments: Taxable if over £30,000. 4. Working Tax Credit: Now part of UC.
55
What is Support for Mortgage Interest?
A repayable loan with interest, helping pay the mortgage interest on up to £200,000.
56
What is Attendance Allowance?
Tax-free benefit for those disabled enough to need help being looked after.
57
What is Carer’s Allowance?
Taxable benefit for those caring for a disabled person.
58
What is Personal Independence Payment (PIP)?
Replacement for Disability Living Allowance, based on an assessment of individual needs.
59
What is Employment and Support Allowance?
or those with a disability or health condition affecting their ability to work.
60
What is the Motability Scheme?
Enables disabled people to lease a vehicle.
61
How much is Statutory Sick Pay (SSP)?
£117 per week, paid by employers and taxable. 28 weeks for one period of sickness
62
What factors affect pension requirements?
1. Age (Urgency and other priorities) 2. Income 3. Dependants 4. Current Arrangements 5. State Pension
63
What is the annual pension contribution allowance, and how is it tapered?
60k per year allowance, reduced by £1 for every £2 earned over £260k
64
What are the two options for DC Pensions at retirement
Uncrystallised Funds Pension Lump Sum (UFPLS): Take lump sum (25% tax-free; rest taxed as income). Flexi-Access Drawdown: Withdraw amounts as needed (taxed as income).
65
What are the details of the new state pension (post-April 6, 2016)?
£221pw, £11,500py, 35 years qualifying NIC needed with no contracting out
66
What are the two types of private pensions?
1. Occupational Pensions (DB or DC). 2. Personal Pensions: Set up by individuals, manager by a provider
67
What are the characteristics of occupational pensions?
1. Set up by employer with trustees overseeing the scheme. 2. Benefits guaranteed by trustees. 3. Pension assets kept separate from employer’s assets.
68
What is the difference betwwen a DC pensions and a DB Pension
Definded Benefits Pension: Provides income based on final salary or career average. Accrual rate based on year of service eg 40/60 for 40 years of service. Funded by employer and funds are pooled, income is predictable. Defined Contribution Pension: Contributions are fixed and benefits are based on investment performance. Funds can be pooled or earmarket. More flexibility but less predictable for worker. More predictable costs for employer
69
What are Group Personal Pensions (GPPs)?
Personal pensions where employers contribute, used in place of DC pensions to eliminate trustee costs
70
What defines short-term, medium-term, and long-term investments?
Short term: Less than 5 years. Medium Term 5-15 years. Long Term 15+ years
71
What should be prioritized before saving or investing? (3)
Pay off expensive debt, insurance, emergency fund
72
What is the typical emergency fund amount?
3-6 months of expenses, or 10% of investments if living off capital
73
What are common short-term savings products?
1. Savings Account 2. Cash ISA 3. Notice Account (30-90 days notice required) 4. Fixed-rate bond (1 year terms, usually 1k minimum) 5. High-Interest Regular Saver 6. Help to buy ISA (No new accounts 2019)
74
How is interest on savings taxed
£5,000 allowance for nil-rate tax payers. £1,000 allowance for basic rate tax payers, then 20% above this. £500 allowance for higher rate tax payers, then 40% above this, No allowance for additional rate tax payers who pay 45%
75
What products do NS&I offer (5)
1. Premium Bonds 2. Savings Bonds 3. Fixed/variable Income Products 4. Green Savings Bonds 5. Investing for Children
76
How should inflation impact medium-term investments?
Consider fixed interest or low-risk equities to preserve capital against inflation. Maintain an emergency fund to avoid liquidating medium-term investments
77
What are the three layers of investments?
1. Underlying Asset 2. Pooled Investments (Unit Trusts, OEICs) 3. Tax Wrappers (ISAs, Pensions)
78
What are the two approaches to investing?
1. Convential 2. Sustainable and Responsible
79
What are the benefits of pooled investments? (4)
1. Professional management 2. Easier to spread risk with low initial funds 3. Lower administration costs. 4. Wide chocie
80
What are the main types of pooled investments offered? (4)
1. Open Ended Investment Funds 2. Life and Pension Funds 3. Endowments 4. Investment Trusts
81
What are the characteristics of investment trusts?
Closed-ended with a set number of shares. Price depends on demand
82
What are derivatives and CFDs?
Derivatives: Right/obligation to buy/sell assets at a future price. CFDs: Contracts to pay the price difference between the current and future asset value (high-risk).
83
What are structured products?
Combine capital growth and interest based on an underlying asset. New investments only open for a short period of time and money is tied up for 1-10 years
84
What is the limit for Junior ISA contributions?
£9,000 per year
85
What is the nil rate band (NRB) for inheritance tax?
£325k, with an additional £175k if a parent leaves their main residence to a direct descendant. 40% 40% is paid on estates exceeding NRB and RNRB
86
Who is exempt from inheritance tax (IHT)?
Spouses and charities.
87
What happens to unused NRB and RNRB when the first spouse dies?
The unused portion is passed to the surviving spouse, calculated as a percentage of the first unused NRB or RNRB.
88
How is RNRB passed on if the first death occurred before 6 April 2017?
100% of the RNRB is passed to the surviving spouse.
89
How does the RNRB taper
The RNRB decreases by £1 for every £2 above the £2 million threshold.
90
How can a life policy be used in IHT planning
A Life policy allows money to be moved outside of the estate, and providers a lump sum which can be used to pay IHT liabilities
91
What are the four main approaches to tax planning?
1. Use all tax allowances and exemptions. 2. Invest in tax-free return vehicles (e.g., ISAs, NS&I). 3. Choose investments with tax relief (e.g., pensions). 4. Select suitable investments based on the client’s tax position.
92
What is the difference between tax mitigation and tax evasion?
Tax mitigation is legal, while tax evasion is illegal.
93
What is a key ethical guideline in tax planning?
Never recommend a scheme you do not fully understand or persuade a client solely for tax advantages.
94
Why is it important to audit a client’s tax position regularly?
To ensure all strategies remain effective and compliant with current laws.
95
What should be considered for effective tax planning? (7)
1. Use exemptions yearly 2. Claim available allowances and reliefs 3. Pay attention to tax-year timing 4. Utilise tax free pension lump sums 5. Maximise ISA contributions 6. Consider tax implications before transactions 7. Complete and pay taxes on time
96
Why should tax planning remain flexible?
To adapt to changes in tax laws.
Ro1
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