Taxation and Estate Planning
Taxation spans income tax (with personal allowance, basic, higher, additional rates), capital gains tax (annual exempt amount, rates differing by asset type), inheritance tax (IHT), and stamp duty. Estate planning uses wills, trusts, gifts, and life assurance to manage IHT and pass assets efficiently.
Key IHT concepts: the nil-rate band (£325,000), the residence nil-rate band (up to £175,000 where a main home passes to direct descendants), the spouse exemption, and potentially exempt transfers (PETs) - gifts that become exempt if the donor survives seven years. Taper relief reduces tax on gifts made 3–7 years before death. Business relief and agricultural relief can reduce or eliminate IHT on qualifying assets.
Traps: assuming all gifts are immediately exempt; confusing the annual exemption (£3,000) with the small gifts exemption (£250); forgetting that PETs use up the nil-rate band first; and ignoring the seven-year rule in calculations. Also watch for the difference between domicile and residence for IHT.
Worked example: An estate worth £600,000 passes to children, including a home worth £300,000. Nil-rate band £325,000 plus residence nil-rate band £175,000 = £500,000 threshold. IHT at 40% applies to £100,000 = £40,000, unless reduced by lifetime gifts or charitable legacies (10% to charity reduces the rate to 36%).
Rule of thumb: gifts are not free - track the seven-year clock.
Ethics and Professional Conduct
Ethics underpins every other domain. Candidates must understand the FCA's Principles for Businesses (integrity, skill care and diligence, management and control, financial prudence, market conduct, customers' interests, communications, conflicts of interest, customers' relationships of trust, clients' assets, relations with regulators). The Code of Ethics from professional bodies (such as the CII) sets standards of integrity, competence, and accountability.
Core concepts: acting in the client's best interests, managing conflicts of interest, confidentiality, suitability, fair treatment of customers, and vulnerability. The Consumer Duty reinforces these with a requirement to deliver good outcomes. Whistleblowing and treating customers fairly (TCF) are practical expressions of ethical conduct.
Traps: confusing legal with ethical (an action can be legal but unethical); assuming disclosure alone resolves a conflict (it may not - avoidance or management may be needed); and overlooking vulnerable customers, who require additional care. Also watch for questions on inducements - banned unless they enhance the service and do not impair judgement.
Worked example: An adviser is offered a luxury holiday by a product provider whose fund she is considering recommending. Even if she discloses it, accepting could impair impartiality and breach inducement rules. The ethical response is to decline the gift and document the recommendation decision on merit alone. Disclosure is not a cure-all.
Rule of thumb: if you would not be comfortable defending it publicly, do not do it.