Chartered Institute for Securities & Investment (CISI) Qualifications Wealth Management and Financial Planning Flashcards

24 sample cards from the Wealth Management and Financial Planning deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the minimum holding period to retain income tax relief on EIS shares and on VCT shares?

   EIS shares must be held for at least 3 years; VCT shares must be held for at least 5 years. Disposing earlier triggers withdrawal/clawback of the income tax relief.

2. Explain the '5% rule' (tax-deferred withdrawal allowance) on UK investment bonds.

   An investor can withdraw up to 5% of the original premium each policy year, on a cumulative basis for up to 20 years, without an immediate income tax charge. Withdrawals above 5% create a chargeable event gain.

3. Contrast the internal tax treatment of an onshore investment bond with an offshore investment bond.

   An onshore bond's fund suffers UK tax internally (broadly equivalent to basic-rate, so a basic-rate credit is given on gains). An offshore bond enjoys 'gross roll-up' with little or no internal tax, so the full gain is taxable on the investor when a chargeable event occurs.

4. What is 'top-slicing relief' on an investment bond chargeable gain?

   It spreads a chargeable event gain over the number of complete years the bond was held to determine the rate of tax, potentially reducing or avoiding higher-rate tax. The relieved gain is found by reference to the 'sliced' gain $= \frac{\text{total gain}}{\text{number of complete policy years}}$.

5. For 2024/25, what is the full new State Pension weekly amount and how many qualifying years are needed?

   The full new State Pension is $\pounds 221.20$ per week. A person generally needs 35 qualifying years of National Insurance for the full amount, and a minimum of 10 qualifying years to receive anything.

6. What is the 'triple lock' on the UK State Pension?

   The triple lock guarantees the State Pension rises each year by the highest of: average earnings growth, price inflation (CPI), or 2.5%.

7. What are the key features of automatic enrolment into a workplace pension?

   Eligible jobholders (aged 22 to State Pension age, earning above the trigger, e.g. $\pounds 10{,}000$) are automatically enrolled. Minimum total contribution is 8% of qualifying earnings, of which the employer pays at least 3%; employees may opt out.

8. Distinguish a 'defined benefit' (DB) from a 'defined contribution' (DC) workplace pension.

   A DB scheme pays a pension based on salary and service (e.g. final salary or career average), with investment risk on the employer. A DC scheme builds a pot from contributions plus investment growth, with the eventual benefit and investment risk falling on the member.

9. What is the standard pension Annual Allowance for 2024/25, and how can it be tapered?

   The standard Annual Allowance is $\pounds 60{,}000$. It is tapered for high earners — reduced by $\pounds 1$ for every $\pounds 2$ of adjusted income above $\pounds 260{,}000$ (where threshold income exceeds $\pounds 200{,}000$), down to a minimum of $\pounds 10{,}000$.

10. What is the Money Purchase Annual Allowance (MPAA) and when is it triggered?

    The MPAA limits money-purchase contributions to $\pounds 10{,}000$ per year and is triggered once a member flexibly accesses pension benefits (e.g. taking income via flexi-access drawdown or an UFPLS).

11. How is tax relief given on personal pension contributions, and how is relief obtained for higher-rate taxpayers?

    Contributions get tax relief at the member's marginal rate. Under 'relief at source', the provider reclaims 20% basic-rate relief automatically; higher- and additional-rate taxpayers claim the extra relief through their self-assessment tax return.

12. What is a SIPP and how does it differ from a standard personal pension?

    A Self-Invested Personal Pension (SIPP) is a defined-contribution personal pension that offers a much wider range of permitted investments (e.g. direct equities, commercial property, funds) and greater investor control than a standard personal pension's limited fund range.

13. What is the maximum a UK individual can normally contribute to pensions and receive tax relief in a year?

    Relief is given on contributions up to the higher of $\pounds 3{,}600$ gross or 100% of relevant UK earnings, but capped overall by the Annual Allowance ($\pounds 60{,}000$ standard for 2024/25, subject to tapering and carry forward).

14. What is the Lump Sum Allowance (LSA) for tax-free pension cash from 2024/25, and the usual proportion taken tax-free?

    The Lump Sum Allowance is $\pounds 268{,}275$ (25% of the former $\pounds 1{,}073{,}100$ lifetime allowance). Members can normally take 25% of a crystallised pension as a tax-free lump sum (Pension Commencement Lump Sum), up to this cap.

15. Compare the three main ways of taking a defined-contribution pension as retirement income: annuity, flexi-access drawdown and UFPLS.

    Annuity: exchange the pot for a guaranteed income for life. Flexi-access drawdown: keep the pot invested and draw variable income (25% tax-free, rest taxed). UFPLS: take ad-hoc lump sums where each is 25% tax-free and 75% taxable as income.

16. What factors determine the level of income a conventional (lifetime) annuity will pay?

    Annuity rates depend on age/life expectancy, health and lifestyle (enhanced/impaired annuities pay more), interest rates and gilt yields, the size of the pot, and options chosen (e.g. guarantee period, escalation/indexation, spouse's pension).

17. Distinguish between the main types of life protection: term assurance, whole-of-life and family income benefit.

    Term assurance pays a lump sum if death occurs within a fixed term (level, decreasing or increasing). Whole-of-life pays out whenever death occurs (no fixed end). Family income benefit pays a regular income (not a lump sum) for the remainder of a term on death.

18. Contrast income protection insurance with critical illness cover.

    Income protection pays a regular replacement income if illness or injury prevents you working, usually until recovery, retirement or end of term, after a deferred period. Critical illness pays a one-off lump sum on diagnosis of a specified serious condition (e.g. cancer, heart attack, stroke).

19. What are the rules of intestacy designed to do, and what happens broadly if someone dies without a will leaving a spouse and children?

    Intestacy rules set a statutory order of who inherits when there is no valid will. With a surviving spouse/civil partner and children, the spouse typically receives personal chattels, a statutory legacy, and half the residue, with the remaining half passing to the children.

20. In estate planning, what is the role of an executor and what is 'probate'?

    An executor is the person named in a will to administer the estate (collect assets, pay debts/taxes, distribute to beneficiaries). Probate (a grant of representation) is the legal authority confirming the executor can deal with the deceased's assets.

21. Identify the three core parties to a trust and define each.

    The settlor (creates the trust and provides the assets), the trustee(s) (legally own and manage the assets under the trust terms and owe fiduciary duties), and the beneficiaries (those entitled to benefit from the trust).

22. Distinguish a bare trust, an interest in possession trust and a discretionary trust.

    Bare trust: the beneficiary has an absolute right to assets/income (treated as theirs for tax). Interest in possession trust: a beneficiary has a present right to income. Discretionary trust: trustees decide how/when income and capital are distributed among a class of beneficiaries.

23. How is a discretionary (relevant property) trust charged to Inheritance Tax during its life?

    Relevant property trusts face a periodic (principal) charge every 10 years of up to 6% on value above the available nil rate band, plus proportionate 'exit charges' when capital leaves the trust between anniversaries.

24. Why are trusts used in financial planning — give three common objectives.

    To control when and how beneficiaries receive assets (e.g. minors or vulnerable people); to reduce or manage IHT and keep assets outside the estate; to provide for a spouse while preserving capital for children; to keep life policy proceeds outside the estate; and to protect assets (e.g. on divorce or bankruptcy).

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