The CII AF1 September 2024 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. 

This article is correct as at 19 November 2024.

You can find the exam guide here. 

Question 1  

The first case study question introduced us to Agnete and Matthias, a married couple, both aged 59. They had one adult son. Agnete was the sole shareholder and director of her business, and Matthias was, at the time, employed but had plans to retire and set up a consultancy business as a sole trader. Their son had been living overseas and was returning to the UK later on in the year.

Agnete and Matthias had various investments. Agnete had an investment trust, directly held shares, a GIA and stocks and shares ISA.  The case study also pointed out that she had made losses in the past which had been successfully registered with HMRC.  The couple also had a buy-to-let property which was jointly held.

The first question was a CGT calculation, and there were various technical points that were being tested, not least the fact that Agenete’s split of income was £12,000 salary and £28,000 dividends, which meant marks were available for showing how the income fell within the various income tax allowances. Also, candidates had to use the information in the case study to deduct the registered losses and the annual exempt amount against the asset that is charged to CGT at the highest rate. The second part of question (a) asked for a description of how and when the CGT must be paid, and this should have been answered well.

Part (b) was in two parts and asked candidates to explain the holdover relief implications of Agnete gifting her private limited company shares to her son as well as the business asset disposal relief implications of selling her business instead of making the gift.

Part (c) tested the liability of Matthias to National Insurance contributions.  This was for seven marks and should have been well answered, with most of the key information contained within the tax table provided within the system.

Part (d) asked for the factors that HMRC would consider when deciding whether Matthias would be classed as self-employed or employed when setting up a consultancy business. This is an area not overly tested in the past but very clearly covered in the R03 text book which supports the AF1 syllabus.

In part (e) the rules around residency were tested; the two tests that HMRC would use to determine the son’s residence status.  Previous exam guides have noted that candidates are often weak in this area, so in this exam, it did seem a fair test of knowledge more than application.

In part (f) another calculation appeared – this time the Income Tax payable on the encashment of an offshore investment bond. This is another area that, since the introduction of the new process, has not been overly tested within the AF1 exam, so may have been an unwelcome surprise for the less prepared candidates.

Question 2

Question 2 introduced us to Konrad and Kara, a couple in their 60s, with two adult children. Konrad was retired and Kara worked part-time.

The first question tested how the marriage allowance applied to the couple and the process they would  need to follow to claim it. An Income Tax calculation for Konrad then followed which meant showing how the marriage allowance would be allowed for.  Konrad had a VCT so knowledge of these was required to recognise that the dividends are not taxable and so should not have been included in the workings.

The next question asked for the disadvantages of Kara losing mental capacity with an LPA in place. This is very standard level 6 knowledge and should not have caused difficulties for AF1 candidates.

Products are often tested within AF1, and this time, it was the turn of the Discounted Gift Trust. Following this in the final question was the factors the couple should consider prior to setting one up.

Question 3

Question 3 was regarding Jerry who had died in the tax year and his wife who had died five years prior.  Details of a charitable donation were given in the case study alongside his assets.  We were also told that in her Will, Aroha had left £260,000 to a discretionary trust.

The questions started with an IHT calculation.  To get good marks, candidates had to correctly work out the amount of transferable nil rate band as well as including the £15,000 donation.

Part (b) asked for the benefits of the discretionary trust that was created in Aroha’s Will rather than each grandchild benefiting outright at age 21. Good candidates would have related their answers back to the case study information where it was stated that one of the grandchildren had a gambling habit.

Part (c) tested the taxation of a discretionary trust where new rules have recently been introduced as well as a small number question on expenses.

Finally, candidates had to describe the trustee’s investment powers and duties under the Trustee Act 2000 which is really level 4 knowledge straight out of the J02 text book.

Overall, it was an AF1 exam which covered a wide breadth of knowledge, ranging from technical level 6 application of knowledge sprinkled with less challenging tests of level 4 knowledge.

Comparison with the February 2024 Exam Paper 

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

The topics covered were:

• Income Tax calculation
• Qualifying interest payments
• Self-employed taxation
• Real Estate Investment Trusts
• Tuition/maintenance loans
• Rules of intestacy for unmarried couples
• Process of setting up an LPA
• Losses for CGT purposes
• CGT calculation
• Tax planning considerations of investing in an EIS
• CGT consequences of transferring assets between spouses
• IHT calculation
• Discounted Gift Trusts
• Fall in value relief – IHT
• Excluded property trusts

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