The CII AF1 February 2024 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 1 May 2024.

You can find the exam guide here. 

Question 1  

The first question introduced us to Julia and Phil, both aged 55 with two children, aged 16 and 18.

Candidates were given various pieces of information regarding qualifying interest payments, pension contributions, and details of overlap profits.  We were also told that one of the children was due to start university in 2024, and finally, we were given details of Phil’s mother who was showing signs of memory loss.

A table of assets included the usual stocks and shares and cash ISAs but also included a Real Estate Investment Trust, amongst other investments.

The exam often starts with a calculation, and this was no exception.  Candidates were asked to calculate Julia’s Income Tax liability. Using the information in the case study meant that candidates would have needed to gross up the distribution from the PID in step 1 of the Income Tax calculation as basic rate tax would have been deducted at source, deduct the interest payments, and extend the basic rate band by the pension.

Anyone studying for AF1 should practise the main calculations, ensuring they know how to deal with certain investments and deductions, as this will not be wasted effort.

In the next question, candidates had to describe any implications if the qualifying interest payments Julia makes increase to £5,500 per month and her share of the partnership profit increases to £250,000 with her pension contributions staying the same. Again, candidates must remember to use the information contained in the case study (this is the case for any level 6 CII exam).  Many of the marks were for the test of the cap on qualifying interest payments but also, recognising that she would lose the personal allowance and PSA should have been easy marks at this level.

Next in part (c), the way the self-employed are taxed was tested.  This is often tested within AF1, but with 2023/2024 being a transitional year leading into a new tax year basis in 2024/2025, this may have caught out some candidates, particularly those who had used past exam guides to study from. Although this is something we do recommend, candidates do need to keep up to date with knowledge so that old model answers can be tailored to suit new regulations.

Product knowledge can be included in AF1, and part (d) of this sitting asked candidates to explain the qualifying conditions for a REIT and the tax position.  There were quite a few marks on offer, and it may have caused some problems for those who had not included these in their study schedules.

Another new syllabus area was tested in part (e); we had been told Oliver was starting university in the case study, and this question tested when he would have to start repaying any tuition/maintenance loans.  Again, this may have caught some candidates out, particularly those who had not used the latest version of the supporting textbooks.

Part (f) tested a common area: intestacy. The case study had detailed the fact that Julia and Phil were not married, and the question asked how Phil’s estate would be distributed on his death.  Candidates would have needed to distinguish between the assets held in his name as well as the ones jointly held with Julia.  Also the house was held as tenants in common so it was a further test of specific technical knowledge.

Powers of attorney also appear in most exam sittings; this time candidates had to explain the process of setting up an LPA as well as how attorneys can be appointed – either jointly or jointly and severally.  This has been tested fairly recently, so anyone using past exam guides would have benefited from the model answers already supplied.

Question 2 

This case study question concerned Sophia and Imran.  Sophia had made various disposals – some of which made losses, and she also had previous losses that had not been reported. Candidates would have known from the information given that CGT was next on the list to be tested.

Firstly candidates were asked to identify the losses within Sophia’s investments and the extent to which they could be used. Within the list, we had gilts, so a couple of marks were available to state that they could not be used to offset against other gains as they are not chargeable to CGT.

Next the calculation, which included a disposal of 10,000 pooled shares.  This is an area that has been tested periodically before, so hopefully didn’t cause too many surprises.

The next question asked for the tax planning considerations when deciding whether to reinvest a gain into an Enterprise Investment Scheme.  This was for seven marks and should have given candidates an opportunity to think of all the different tax breaks on offer and the planning that married couples can do to save tax.

Finally, more recent legislation was tested – this time the implications for CGT of transferring assets between spouses, upon separation and on divorce.

Question 3 

The final question introduced us to Larry, aged 80, his two children and five grandchildren.

Larry had made gifts into three different trusts and the trustees of one of them were planning on making a distribution to one of the grandchildren.  Candidates may have groaned at the thought of an exit and periodic charge or may have been very happy, depending on how much they had practised the calculations!

We were also given details of a gifted rental property, which had dropped in value on death, and finally some residence information.

The IHT calculations were tested first: the periodic charge, the exit charge, and an explanation of who would be responsible for the payment and reporting.

The periodic charge was for nine marks so candidates had to be sure they had studied the case study in full to ensure they calculated the amount of nil rate band available, as well as ensuring the effective rate was correctly worked out.

Another product was tested in part (b) – this time the turn of the Loan Trust Scheme. These, together with DGTs, often form part of this exam, so future candidates would do well to ensure their knowledge around these IHT planning schemes is sound.

In part (c), candidates had to explain how the reduced value of the rental property on the date of death would have affected the IHT payable.  This was testing a less common area known as ‘fall in value relief’, and it may have caused some problems for the not-so-well-prepared candidate.

The exam finished with a question on domicile and excluded property trusts.  A question on residence and/or domicile should always be expected in AF1, and EPTs have been tested before, so should not have caused too many issues.

Overall, this seemed like a good paper with a good mix of areas tested many times before, along with some legislation.

Comparison with the September 2023 Exam Paper 

Let’s look at what was tested in September 2023’s paper. This exam guide can be found here.  

The topics covered were:

• IHT calculations
• Tax treatment of income received by a Will Trust
• CGT treatment of assets in the Will trust
• Removal of trustee due to dementia
• Drawbacks of not having a valid power of attorney
• Residence status
• Income Tax calculation
• National Insurance contribution calculation
• Employer’s liability for Income Tax and NICs
• Annual allowance
• Seed EISs
• Investments for children
• Rent a Room scheme
• CGT on flat
• Impact of marriage on existing Wills/requirements for a Will to be valid

Grab the resources you need!

If you’re studying for your CII AF1 exam, and you want 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!