The CII AF1 February 2025 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 2 May 2025.

You can find the exam guide here. 

Question 1  

The first case study introduced us to an unmarried couple in their 40s. Mark had a 14-year-old child from a previous marriage, and Julia ran her own business.

The exam started with two calculations; firstly, candidates had to calculate Julia’s adjusted net income for the tax year, and for a bigger chunk of marks, her actual income tax liability which would have used the figures calculated in the first part of the question resulting in her not being eligible for a personal allowance.  It’s not often that the position of an additional-rate taxpayer is tested, so candidates needed to remember that a PSA does not apply and that the higher-rate threshold is extended by both the charitable donation and the SIPP contribution.

Next, the exam tested how income tax relief is received on monthly contributions to a UK-registered charity, followed by a ten-mark question on how a single pension contribution would assist her income tax situation.  Both of these questions have been asked in previous years, so those using previous exam guides should have been well prepared.

The exam then moved to Mark; he had started a consultancy business in October 2024 as a sole trader.  Firstly, candidates had to explain the basis of assessment in his first two years of business and also his liability to National Insurance contributions.  The taxation of the self-employed has changed in recent years, and this was not the first time it had been tested within the AF1 exam, so again previous exam guides may have helped with preparation.  Questions on National Insurance contributions  should be a rich source of marks as most of the information is in the tax table provided on the day.

The exam continued with two questions on VAT – firstly the actions Mark must take if his profits reach the VAT threshold and also how the flat rate scheme works.  This would have been a challenge to those not familiar with working with self-employed clients.  Some information is in the tax table regarding the threshold, but the detail around deadlines may have proved more difficult.  The flat rate scheme is for businesses with annual turnover of less than £150,000 and some of the technical detail is very specific which, although within the R03 text book, candidates may not have studied in full.

A fair and straightforward question followed, focusing on the implications of Mark dying without amending his Will. This is a very standard topic for AF1, and candidates should have been aware that a Will is not revoked on divorce. The case study also included information about maintenance payments, which some candidates may have recognised as relevant to this question.

The final question of Part 1 tested 18 to 25 trusts and the IHT exit charge on distribution at age 25 and again this may have caused some difficulties as the trust is not as well-known as some of the others.

Question 2

In this question, we met Declan, aged 64 who had a Swedish partner who had moved to the UK in May 2024.

Declan had a holiday home which the couple were planning to move into with Declan renting out his current main home. Both had investments and Declan was also the life tenant of an interest in possession (IIP) trust.

The questions started with how Gilda would be treated for CGT purposes in the tax year of her arrival and the implications of her using the remittance basis.  The first part of the question was testing knowledge around the number of days (183) that someone needs to spend in the UK to be treated as UK resident.  The remittance basis has been around for a long time and tested before, but with its imminent replacement, may have caused some confusion as to why it was tested.

The exam followed with a factors question – this time those that Declan should be aware of in respect of private residence relief when he leaves his home and moves to the furnished holiday let.  This is an area that has also been tested in the past – the fact that he would have had to determine which home is treated as his main residence for private residence relief and if he did not make an election then the Revenue decides.

There was then a CGT calculation for Declan which involved a chattel and a negligible value claim and finally an explanation was required as to the tax treatment of the income that will be paid to Declan from the IIP trust.

Question 3

The final question in the exam involved a retired married couple.  Johan had income from a personal pension in drawdown, and Mairi had a defined benefit scheme pension.  The exam also provided a table of their various investments.  Johan had also inherited the estate of a friend following their death a year ago.

The first question asked for an explanation of how Johan will be taxed on the income he received in the tax year. It wasn’t a calculation although it may have been easier for some candidates to display it as such.  The point tested is that the personal allowance can be used in the way that most benefits the taxpayer which meant for Johan the excess over what was used for the pension was set against the dividends.  With most examples in R03 showing the order of priority as earned, savings and then dividends, this would have caught some candidates out.

The IHT calculation that followed was a challenge in as much candidates had to use quick succession relief, and this isn’t necessarily an easy formula to remember.  However there were other marks available for the correct use of the NRB and the RNRB.

Next came a question on the conditions for a deed of variation, which has been tested numerous times and should not have caused too many problems.  For a further three marks, candidates had to explain why a disclaimer would not have been appropriate for Johan to use.

Finally the question on powers of attorney, and this exam covered the drawbacks of the couple’s existing enduring powers of attorney, which followed with a question on the benefits of their replacing their EPAs with new LPAs.

Overall, the exam covered the expected calculations on income tax, CGT and IHT with a number of standard theory questions on deeds of variation and Wills.  It was sprinkled with some more challenging areas such as VAT, chattels relief, and quick succession relief.  With a nominal pass mark of 55%, we hope that candidates were able to gain enough marks on the standard questions and calculations to reach an overall pass.

Comparison with the September 2024 Exam Paper 

Let’s look at what was tested in September 2024’s paper. This exam guide can be found here.  

The topics covered were:

• CGT calculation including a buy-to-let and when payment must be made
• Gifting shares in a limited company versus selling a business
• NICs for employees
• HMRC factors to determine whether self-employed or employed
• Residence tests
• Income tax on an offshore investment bond
• Marriage allowance
• Income tax calculation
• Losing mental capacity with LPAs in place
• Discounted gift trusts
• Inheritance tax calculation
• Discretionary trust set up in a Will
• Discretionary trust taxation
• Investment powers under the Trustee Act 2000

Both papers covered different topics, which should remind candidates to use as many past papers as possible to gain a good spread of revision material to help with a future sitting of AF1.

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