Our Review of the October 2017 CII AF1 Exam – Application of Knowledge is Key

As the CII have now released their exam papers from October 2017, it’s time for us to start scrutinising them – this week we start with AF1 Personal Tax and Trust Planning. This will be invaluable reading as you prepare for your CII AF1 exam.

If you haven’t seen it yet, then the paper can be found here:

http://www.cii.co.uk/media/7774723/af1_october_2017_qp.pdf

Question 1

Question 1 is the big 80-point question and as is often the case, many different people are involved, the names of which can be sometimes hard to keep track of.   This time, we had Penny and Ian, both of which had a child from a previous marriage, Ben and Emma and we also had Ian’s mother, Rosemary to keep track of.

There were four calculations in Question 1, which totalled just 25 of the marks, the rest was made up of explanations of various technical areas.   The calculations included income tax, adjusted income, an annual allowance charge and an allowable loss on an EIS.

The income tax calculation had gift aid thrown in, PMI, corporate bond unit trusts, deposit account interest and a reduction in personal allowance.  Quite a lot there but nothing that hasn’t been tested before, so candidates should have been pleased with the way the exam started.  The second part of Question 1 asked for a calculation of adjusted income and the annual allowance tax charge; this was new territory for AF1 and may have been a challenge for some who may not have prepared enough in these areas.

Reducing income tax and the annual allowance charge by changing ownership of investments and why the charity donations should have been in the high earner’s sole name should have been straightforward.

The exam continued with a question on spousal bypass trusts and the tax treatment of pension funds that go into the trust.  Most would know that death before 75 means no tax as long as paid within 2 years, but we suspect some would have got caught out with the 45% charge after age 75.

The next question was the calculation on the EIS loss, which thankfully was only for four marks as our guess is this would have been answered badly.  We then had almost an AF5-type question, where delegates had to outline the factors to consider before advising Rosemary on whether to sell or retain the shares in the EIS.

The exam continued with questions on how bankruptcy affects a lasting power of attorney and how a specified inheritance in a will for a bankrupt person would be dealt with by a TIB and finishing with a question on how an estate should be distributed taking into account the potential bankrupt and finally deeds of variation.   Good candidates would have picked up marks here but we feel overall, the question ended up testing some challenging technical areas.

Question 2

Onto Question 2, and we are introduced to a single person with residence complications and CGT liabilities.  The questions started with an explanation of why the client would be treated as UK resident which would have included adding up how many days she had been in the UK as well as the fact she was employed.

Next there were 12 marks on offer for a calculation which included pooled shares, other shares and a house.  This meant the student would have needed firstly to know how to calculate a gain on pooled shares as well as how losses and the CGT exempt amount are deducted from the gain that is taxed at the highest rate – in this example the house and also how it relates to her income tax position.

The rest of the question was made up of SDLT on second properties, the rules for a furnished holiday let (loved by the CII!) along with the benefits.  This has been asked numerous times, so anyone using past papers would have been fine with the detail here.

Question 3

Question 3 was on IHT and tested the tax on establishing a discretionary trust, tax benefits for trustees and beneficiaries if payments are made out of the trust from equity-based OEICS and how the tax pool works. Many of these areas have been tested before and should have been expected by an AF1 student – however explaining how tax pools work we feel would have been a challenge for most.

Finally, there was another IHT calculation assuming death has now occurred, which brought in the 14-year rule and an explanation of why the sum assured on the whole of life plan might be higher than the actual IHT liability – with the model answer presumably including amongst other things the new RNRB.

When we compare this latest paper with April’s paper, there was some overlap with deeds of variation, trustee taxation and income tax.  Students of AF1 should use the last paper as a guide but also use as many previous papers they can get hold of so they are familiar with the type of questions asked and also what hasn’t come up for a while.

Always remember too that AF exams are all about the application of knowledge and so answers should be related as much as possible to the actual case study.

Grab the resources you need!

If you’re studying for your CII AF1 exam, and you’re wanting to feel confident on exam day, you’ll need to prepare as much as possible. Grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF1 calculation workbook taster now!

Over to You…

If you’re planning on sitting AF1 in the near future, on what areas will you focus your study efforts?