The April 2015 CII AF1 Exam – An Exam for the Capital Gains Tax Guru in You

The exam paper for the April 2015 sitting of the CII AF1 exam has been released. In the following article we take a look at what was covered and we give you pointers on how you can approach your studies for the next exam sitting.

Looking at the questions set in April’s AF1 Personal Tax and Trust Planning exam has been really interesting.

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

http://www.cii.co.uk/media/5973082/af1_april_2015_qp.pdf

Question 1

Question 1 is the big 80-point question, and you really needed to be a bit of a guru on capital gains tax legislation if you wanted to score well. The question involved calculating CGT liabilities on various assets being disposed of – including shares, VCTs and EISs, both of which were invested in using the proceeds from a previous disposal. Only the EIS would have received CGT deferral relief so that would need to have been taken into account on their disposal. There was a second property that had refurbishment costs and enhancement costs. There were also losses to know what to do with as well as an onshore bond, which we hope delegates didn’t include as an asset subject to CGT.  It didn’t stop there; there were also questions on holdover relief, the CGT rules on transfers between spouses and former spouses and share identification rules.

The rest of the marks were made up of residency rules and chargeable gains on the bond and then finished … with a bit more on CGT! This time how World War II medals and a pocket watch are taxed on their disposal. The medals would have been exempt had they not been sold by the owners’ son and the pocket watch would have meant doing the 5/3 calculation, in reality to make sure the correct gain was taxed which happened to be the sale value less the probate value, but as the question asked for the maximum gain it was the 5/3 calculation that gave the right answer.

Question 2

All in all, a pretty exhaustive test of capital gains tax legislation so thank goodness for question 2 which was short and to the point – an income tax calculation and some questions around self- employed versus employed and what happens if a limited company fails.

Question 3

Finally Question 3 and this focused more on IHT, powers of attorney, POAT, the new intestacy rules and a question on the perpetuity and accumulation rule for trusts. I think any well prepared AF1 delegate would have been pleased with questions 2 and 3.

Comparing to the October 2014 Sitting

We’ve compared this paper with the paper in October 2014, which can be found here:

http://www.cii.co.uk/media/5621498/af1_october_2014_qp.pdf

As expected Question 1 had masses of detail and the questions were challenging; income tax calculation as well as an IHT calculation, the rules on holiday lets, POAT again and 12 points around wills.

The bulk of Question 2 surrounded personal injury trusts and was quite detailed – this type of question has come up in other exams – and you really have to search for the information within J02. We think this could have been a challenge to get full marks.

Question 3 was a mixture of CGT, capital allowances and National Insurance – anyone worried about not picking up enough marks in Question 2 could have got some back in this question.

Common pitfalls with this exam, as with many of the other AF exams, are that candidates do not answer the question being asked and not in enough detail. It’s easy to go off on a tangent, but if you haven’t actually answered the question you just won’t get the marks.

Keeping up to date is of course paramount – any changes in legislation are tested by the CII 3 months after they take effect. It’s worth looking at the section on their website which has the amendments to R03 and J02 to ensure you know when changes will be tested. Using past papers is of course a really good way to prepare – use as many as you can lay your hands on.

Like all AF exams, AF1 is a challenge. Having said that, in both papers all the information you needed would have been covered in the manuals somewhere. This means that as long as a well-prepared study plan is put together (and stuck to) with plenty of relevant calculation practice, all the delegate then has to do is master time efficient exam technique to get a pass.

Grab the resources you need!

If you’re studying for your CII AF1 exam, and you’re worrying your knowledge is not up to scratch, grab our free taster to try out one of Brand Financial Training’s calculation workbooks for yourself.  Click the link to download the AF1 Calculation Workbook taster now!

Over to You…

Do you think your knowledge of CGT would have served you well had you been sitting this exam?