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The CII AF1 July 2020 Exam in Review

The CII AF1 July 2020 Exam in Review

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

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

Question 1

Question 1 is for 80 marks and, unusually, candidates only had two individuals to contend with rather than at least two or three generations.  This exam focused on Fenella and Brad, both divorced from their former partners.

The first question was for 14 marks and tested income tax. Candidates had to calculate Fenella’s income tax liability, which means candidates searching through the case study looking for specific items to be included; this time around, we had rent-a-room income (not taxable as less than £7,500), a contribution to a SIPP, earnings, bonus, dividends, self-employed profits, interest, and ISA income (also of course not taxable).  As long as delegates had practised this type of calculation, then this shouldn’t have caused too many issues, as the calculation has been tested many times before.

The second question tested National Insurance contributions: firstly, her liability, which would have meant working out Class 1 as well as Class 2 and 4 contributions, as she also had self-employed profits.  The challenging part of this question was explaining the application of maximum limits in part (ii); although it was only for four marks, so if candidates didn’t know, they weren’t sacrificing too much.

The exam went on to test the rent-a-room conditions, practical examples of whether Brad’s properties would qualify as furnished holiday lets, how a period of grace election can be made, and the tax advantages of a property that does qualify as a furnished holiday let.  Some of these areas have been tested many times before; others, such as grace elections in (ii), have not been.

Case Study 1 finished with how charitable gifts are treated in lifetime and on death, the process for claiming gift aid, and how making gifts to charity can reduce IHT on death.  Finally, candidates had to explain how divorce impacts a will, how an estate is distributed without making a new will, and finally the conditions that need to be met for a will to be valid.  Wills come up very frequently in AF1 so should not have caused too many issues for the well-prepared candidate.

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Question 2

Onto Question 2 where we were introduced to Max, a widower, who was leaving his estate to his children, one of which was in financial difficulties.

The first question was on CGT – not a calculation this time but an explanation focusing on how CGT is calculated on the disposal of assets of an estate by an executor during the administration period.

The test continued with the expected bankruptcy question, the steps that the daughter needed to take on learning of her inheritance, and how the trustee in bankruptcy would deal with it also.  This part of the paper was for just 8 marks.  Question 2 finished with a test of deed of variations and disclaimers; again how the daughter’s bankruptcy would impact the effectiveness of both, and finally the responsibilities of the executor and consequences for failing to meet those responsibilities regarding the bankruptcy.

Question 3

The questions covered how trustees can be replaced, a calculation of an exit charge and a description of a periodic charge, the taxation of a discretionary trust, and finally the tax treatment of income paid to a beneficiary of an interest in possession trust.

Comparison with the October 2019 Paper

If we compare this to what was tested in October 2019, we can see the following came up then:

  • IHT calculation including quick succession relief
  • Tax position of a discretionary trust
  • Duties of a trustee
  • Powers of attorney
  • IHT exemptions and allowances
  • Absolute trusts
  • Tax treatment of a trust for a vulnerable beneficiary
  • Tax paid on the surrender of a life policy
  • CGT including lettings relief and principal residence relief
  • Residency rules
  • Deferral of State pension
  • Stamp duty land tax on a holiday home
  • Tax treatment of an EIS and a VCT
  • Income tax and the benefits of structuring salary and dividends
  • Personal pension contributions vs company pension contributions
  • Wills, intestacy, and divorce

As you can see, there is some overlap with the exam in July, so using old exam guides for studying and revision is vital.  As always, it’s also essential to keep up to date with any changes as these can often appear in the next available exam sitting.  It’s always sensible to practise income tax, CGT, and IHT calculations as the chances of one or two of these appearing are high.

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