The CII AF1 April 2019 Exam in Review
The CII have released their exam papers from the April sitting, so it’s time for us to see what was tested this time round; we kick off with the AF1 exam: Personal Tax and Trust Planning.
If you haven’t seen it yet, then the paper can be found here.
Question 1 is for 80 marks in total and usually covers the testing of a variety of different topics. In this paper, we were introduced to Amy and her 3 children, her partner Ian as well as Amy’s sister Carol and their (un-named) mother. We were given various pieces of information, such as Amy holds most of the assets and is the higher earner, whereas Ian has little in the way of assets and runs a business in decline.
The first question asks for Amy’s income tax liability and, for 15 marks, needs to encapsulate all the information given in the case study such as her earnings and bonus, her benefit in kind, investment income and VCT investment. Red herrings in the case study that shouldn’t be included were the maintenance payments, income from ISAs, the group IP premiums and also the pension. As long as candidates worked out what to include and what not to include, the calculation should have been straightforward.
The exam then went on to ask about Amy’s entitlement to State pension, so candidates should have described the new State pension and how her time out looking after the children might have impacted this. Candidates then had to describe the financial impact of sacrificing her annual bonus for a pension contribution, which was for 6 marks.
We then had a question (for 4 marks) on how an interest-free employer loan is treated for income tax purposes – this might not have been previously tested so may have challenged some who perhaps hadn’t studied that particular area.
The next question tested disclaimers for 8 marks and then asked how a deed of variation would help Carol rather than a disclaimer. Deeds of variation often appear in the AF1 exam (with disclaimers not appearing so often), however some of the technical details apply to both (must be done within 2 years for example), so even if someone was unsure, they could have picked up a couple of marks. We are told in the case study that Carol wishes to re-direct her share of her mother’s estate to her children, so candidates should have related their answer back to this to answer part 2 by stating that with a disclaimer she cannot state where the disclaimed inheritance goes whereas with a deed of variation she can (a key part of any AF exam is to relate answers back to case study information).
Offshore funds were then tested – another area which doesn’t often feature in this exam. Candidates firstly had to explain how reporting status is acquired and maintained and then for 8 marks compare the tax treatment of a reporting fund with a non-reporting fund. This is likely to have been a challenge for some candidates.
We then had a question on the onshore bond held by Amy. This time it was an explanation rather than the usual calculation, but as the subject comes up a lot in AF1, hopefully candidates were prepared.
Finally, we get to Ian and his failing business; the bankruptcy question this time round was on IVAs, firstly the process (for 9 marks) and secondly the advantages of using an IVA compared with being made bankrupt. Bankruptcy always appears in AF1, so candidates should have been prepared for a question, and hopefully it was this one!A review of the April 19 #CII #AF1 exam - this exam is all about the application of technical knowledge Click To Tweet
Case Study 2 involved an older couple, Mabel and Stanley (who had been diagnosed with early stages of Alzheimer’s). The questions involved the capital gains position of Mabel and her holiday flat, a painting and silverware; she also had registered losses. She had a State pension of below the personal allowance, and candidates should have been careful not to use the remaining amount of this against her capital gains. The 5/3 calculation for chattels would have been necessary for the painting but not the silverware, as the sale price was below £6,000.
We then had a question on how HMRC would treat a failure to report accurately a capital gain; this might have been a challenge as would have tested candidates’ wider knowledge. The expected questions on powers of attorney followed, both on an ordinary power of attorney as well as on both types of LPA. Finally for 11 marks, candidate had to outline the circumstances in which Mabel could be removed as an attorney under one or both types.
The AF1 exam always covers residency and domicile, and this appeared in Question 3 where we were introduced to John and Elize, who was domiciled in Iceland but now resident in the UK. The first question was to describe how her Iceland investments would be taxed if she firstly remained domiciled in Iceland and then if she elected to be UK domiciled. This was an opportunity for candidates to reveal their knowledge on the remittance basis.
We then had a question on the CGT implications of transferring unit trusts into a discretionary trust; this was for 7 marks, some of which would have been for describing holdover relief accurately.
We then had the investment duties of a trustee, which seemed like a nice question followed by slightly more challenging questions on periodic charges (a calculation), as well as the calculation of an exit charge. These two calculations were for 12 marks so a significant chunk of the overall marks. Finally, we had a ‘factor’ question; candidates had to state the relevant factors that could cause John to review the investment policy of the trust, and again candidates should have related their answers back to the case study.
Comparison with the October 2018 Paper
If we compare this paper to October 2018, we can see that there was not that much overlap.
That exam had questions on the following:
- Marriage Allowance
- Income tax (calculation)
- CGT on pooled shares (calculation)
- Discounted gift trusts
- Buy-to-let property and mortgage interest relief
- Advantages of buy-to-lets being treated as furnished holiday lets
- Self-employed registration and taxation
- Factors used by HMRC to determine employed or self-employed status.
- How bankruptcy orders affect a home, investments and a SIPP/exempt property
- What would have happened if he’d been a limited company not a sole trader
- State pension
- IHT (calculation)
- Domicile and deemed domicile
- General power of attorney
- Tax avoidance schemes
- How to set up and register a charitable trust
The AF1 exam covers a wide range of subjects but all within the stated syllabus. Some areas are tested time and time again, so past exam papers are vital in preparation. It’s also important to keep up to date with legislative changes, as these also often appear in the next available exam sitting.
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