The CII AF1 February 2023 Exam in Review

The CII has released their papers from the exam sittings that happened in February.  In this article, we look at what was tested this time round in AF1: the Personal Tax and Trust Planning paper. 

This article is correct as at 19 May 2023.

You can find the exam guide here. 

Question 1  

The first case study was regarding Pedro who had died in January of this year.  He had been married to Joy, and they had two children and five grandchildren.

The questions covered various aspects of the AF1 syllabus starting with Pedro’s Income Tax liability in the tax year of death as well as the liability on his estate.  The liability before death should have been relatively straightforward with perhaps only the gift aid donation causing any difficulty.  In part (ii), candidates had to identify that the dividend payment of £1,600 was received during the administration of the estate.  This highlights the need to read very carefully the information in the case study in order to gain maximum marks.

Part (b) asked for Joy’s responsibilities in respect of the reporting and payment of Income Tax in the 2022/23 tax year, which meant candidates had to split the pre-death income and the post-death income.

The questions continued with how Joy could contribute to her ISA using the inherited estate from Pedro as well as the time limits that apply and the Income Tax treatment of death benefits from Pedro’s SIPP.

The exam then continued with the registration responsibilities of James and Pippa as trustees of a discretionary trust.   This was tested in the previous paper so a reminder that if areas are tested, and poorly answered, then similar questions can appear quickly again.

Next came a test of the IHT payable on creation of the discretionary trust and the difference between the trustees paying the tax and the settlor.

To finish off the first case study we had the CGT position on the transfer of unit trusts into the trust and finally the factors trustees should consider when reviewing the investments held in the trust.

Overall, Question 1 covered a good spread of technical knowledge.

Question 2 

The next case study involved a widow named Carole who had also died leaving her entire estate to her two children.

There were only three questions although two did have sub-questions.  The first question was another calculation, this time the IHT liability on Carole’s estate which included calculating the transferable nil rate band from her husband.

Next, there were three questions on deeds of variation; the first one was the Income Tax implications for Kay, then the IHT implications for both Kay and Carole and finally the conditions which must be met for a deed of variation to be effective for IHT purposes.

The first two questions may have caused some challenges but the third part is a very standard AF1 question which has been asked many times before.

This case study finished with the question on powers of attorney.  Firstly candidates had to state the duties of the attorney, then the limitations regarding the attorney’s ability to make gifts and finally the consequences for the attorney if they were to gift money to themselves.

Powers of attorney are always tested within the AF1 exam, and future candidates would do well to ensure they are comfortable with all technical aspects.

Question 3 

The final case study introduced us to Brendan, a 64-year-old divorcé with two children.  He was the sole shareholder of a successful company and also had sold a buy-to-let property.

The questions covered an explanation of business asset disposal relief on the sale of half of the shares in the company; a calculation of the CGT on the company shares as well as on the buy-to-let. It then continued with an explanation of how the remaining shares can be gifted to his children without any immediate liability to CGT.

The final two questions tested residence rules, firstly the CGT impact on the gift of shares when Brendan’s son leaves the UK in September 2023 and finally how the automatic overseas residence test might apply when he leaves in September and returns in 2028 for his sister’s wedding.

Residence and domicile rules tend to cause candidates difficulty so another area where future students should ensure they are comfortable with as much of this part of the syllabus as possible.

Overall, this AF1 sitting covered the usual calculations of Income Tax, CGT and IHT.  The theory questions covered an array of subjects but as already noted students should spend the necessary time making themselves familiar with powers of attorney and the residence and domicile rules.

Comparison with the September 2022 Exam Paper 

Let’s look at what was tested in September 2022’s paper. This question paper can be found here.  

The topics covered were:

• IHT calculation including the 14-year rule
• Taxation of an investment bond
• Trustee registration service
• Exit charges on a discretionary will trust
• Stamp duty land tax
• Furnished holiday lets
• Income tax calculation
• National Insurance contributions calculation
• Impact of divorce on a Will
• Child trust funds
• Capital gains tax calculation
• Implications of selling shares when moving overseas
• Overseas residence and impact on an ISA
• Powers of attorney

As we can see from this list, there are three calculations commonly tested with a variety of other topics.

Future AF1 students would do well to study in detail as many past exam guides as possible.

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