The CII AF1 September 2021 Exam in Review

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

 You can find the exam guide here. 

Question 1  

The main client in question 1 was Maggie; she was aged 68 married to Ian aged 62 who was seriously ill. There had three adult children and two grandchildren, one aged 15 and one aged 19.

The first question was a test of the calculation of top-slicing relief.  It was for 16 marks and is the first time the new HMRC process has been tested through a calculation.  It would have been a challenge for some.

Question (b) was a three-part question and continued the testing of investment bonds. Firstly, candidates had to explain the process when reporting a chargeable gain for three marks; then the way chargeable gains are reported and the process of calculating and paying tax (for another three marks) and finally explain how Maggie would pay her total income tax assuming she did not surrender the bond (this was for five marks).

Question (c) was another calculation; for seven marks candidates had to calculate Ian’s income tax liability assuming he took his whole pension pot as a lump sum.  The second part of the question asked for a more tax-efficient method of drawing the money that Ian needed.

Question (d) was a three-part question on powers of attorney.  Firstly, for three marks, candidates were asked to explain how Maggie could make decisions in the event Ian loses mental capacity.  There were then two questions both for five marks – firstly, the benefits and drawbacks of retaining the current enduring power of attorney and then the reasons why the EPA should be reviewed.  It seems that for each question, marks were available for stating that EPAs only cover financial decisions and not health and welfare.

The exam continued with questions on Lifetime ISAs – firstly, the limitations of Maggie’s making gifts into LISAs and then the extent to which they might be suitable for the children and grandchildren.  With some of them not of age, others already owning property and one not a UK resident, it was a test of the eligibility rules which should have been relatively easy for most candidates.  The model answer for part (i) however, seems to suggest that Maggie could make gifts into Lifetime ISAs whereas in reality this is not possible.

Question (f) tested the implications of placing the bond into a trust; candidates needed to know the initial IHT and income tax implications, the future IHT implications and who would be liable for the tax on any future chargeable gains.  The question in total was for 10 marks.

Question (g) tested residency rules.  These appear in most exam papers so candidates really should be prepared, whereas the exam guide suggests that candidates were not.  This final question tested the position in the current tax year and then in the next for a total of nine marks.

Question 2 

This question involved an unmarried couple, Alberto and Marina.  They had a daughter and Alberto who had died, also had a son from a previous relationship.

The questions started with a calculation – the IHT liability on Alberto’s estate. It was just for eight marks, many of which would have been awarded for working through the gift to charity correctly.

Question (b) asked on what grounds the children could make a claim for reasonable financial provision (Alberto’s Will had made no provision).

Question (c) could have proved challenging; firstly, candidates had to explain how the A & M trust created in 2004 is treated for IHT.  In part (ii) candidates were asked to describe how the trust could have been amended prior to 2008 and the effect this would have had on the IHT position.  Interesting choice of topic and although covered perfectly well in the CII texts, we are sure many would not have been expecting this to be tested.

Question (d) was a further calculation; this one was an exit charge for eight marks.

Finally, question (e) tested the impact of pre-owned asset tax; it was for seven marks and again may have proved a challenge as another topic that is not often tested.

Question 3 

This final question introduced us to Harish who had separated from his wife Mita. They had three properties, one of which was their main residence.  The other two were being transferred to Mita in two different tax years.

The first question tested the implications of these transfers in the two different tax years.  This was for eight marks.

Question (b) was in two parts and concerned the losses that Harish had incurred and the extent to which they could be used to reduce his CGT liability, and the second part was stating when a loss needs to be reported.

Question (c) tested the bed and breakfasting rules and alternative ways of investing. Finally, question (d) tested gifting shares to a charity.

All in all, this felt like a tougher paper than previous ones with some questions testing areas that most practitioners would not necessarily face on a daily basis.

Comparison with the April 2021 Exam Paper 

Let’s look at what was tested in April 2021’s paper. This question paper can be found here.  

The topics covered were:

• Transferable nil rate bands and inheritance tax
• Duties of an executor
• Discounted gift trust and loan trusts
• Drawdown
• Laws of intestacy
• CGT – calculation and theory
• Excluded property trusts
• Income tax – calculation and theory
• Qualifying policies
• Tax relief on investments
• State pension
• Marriage allowance

Grab the resources you need!

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