We continuing the same theme as in our previous R06 post, and looking at case study 2, Dylan and Susan. Remember this was our older case study with in retirement, passing on estates tax efficiency and suitability of investment needs.
Nothing too dramatic in terms of their financial aims, and pretty standard fare for the CII and aims go. Remember there is not an infinite number of different financial aims the CII can come up with, so we tend to see similar ones across the R06 sittings.
The R06 examiner has some favourite subjects including workplace pensions, collective investments such as OEICS and unit trusts, pension options such as flexi-access drawdown and investment bonds (to highlight a few). Whatever is in the April case studies these are base subjects that you need to be prepared for, as questions may not be highlighted by the case study text, but can come out of nowhere.
In February's paper Dylan has an investment bond, so it was a pretty good cert that we would have some sort of investment bond question. And surprise surprise, we did:
'Explain how the income tax liability would be calculated if Dylan's investment bond is surrendered. No calculations required.' (6 marks).
Questions such as these are becoming popular with the R06 examiner. They have moved away from actual calculations in recent exams, and onto explanations of process instead. So, how did you get these six marks?
State the obvious and explain the process!
To suffer any taxation Dylan needed to have made a gain, so how is this calculated? We take his surrender value (plus any 5% withdrawals) and deduct from this his original investment and any subsequent top ups. We also make a note of how many years he has had the bond for (in case that is useful later in the process). Once we have his net gain we then needed to show how we calculate his income tax liability. Dylan appeared to be a basic rate taxpayer and the bond was an onshore one. In which case if we added the gain to his net taxable income there would be no further liability as 20% tax will have been taken within the fund itself. If the gain pushed Dylan into higher rate tax then a further 20% could have been due, but top slicing could have helped reduce this. And that was about all you needed for the six marks available...
One of the examiner comments was that some candidates had talked about a capital gains tax liability. As we have already mentioned areas such as investment bonds need to form part of your generic exam knowledge before you get to the actual case studies. So make sure you have a list and you are by now already working through it...
There's still time to book on the BTS R06 workshop for the April exam sitting. This two-day workshop will take you through a deep-dive into each of the April case studies, helping you to anticipate possible questions, plan your answers and practise writing these, all with feedback and discussion from the expert BTS facilitator.
If you can't attend the workshop, get yourself a copy of the BTS Case Study Analysis, due for release on Tuesday 6th April. This will include as many potential questions that the experts at BTS have been able to identify from the exam case studies, including suggested answers and crib sheets on relevant technical areas (attendance on the workshop gives delegates access to this analysis as part of their booking fee). Look out for the Case Study Analysis e-Learning module in the BTS shop from 6th April.