How do you pass the G10 exam? Well, the obvious way is to work your way thoroughly through the syllabus, practise all the calculations and then in the last few weeks before the exam, gently review it all again with no element of panic. In your dreams!
For the rest of us, it usually means trying to cram six months' work into the last month before the exam and hope we can retain enough to see us through the three hours. And hopefully even remember enough to help us in our day-to-day work.
So let's accept that you are now in the panic zone. You have about a month left and the whole course to cover. What should you concentrate on?
If you do nothing else, practise your sums. Make sure you can do an income tax calculation, a CGT calculation and an IHT calculation. You will not learn to do these calculations by reading a book. Get past papers or case study books and do as many as you can over and over again.
Make sure you set the calculations out properly so that anyone can follow your (hopefully) logical progression through the calculation. That way, if you do make a mistake in the arithmetic, you should still get marks for the correct method.
What twists will be in the sums? Who knows? But think about practising the following:
Dividends – remember these are assessed at 10 per cent for basic-rate taxpayers and at 32.5 per cent for higher-rate taxpayers. They are generally paid net of 10 per cent tax credit. This means that an £163.80 dividend grosses up to £163.88.89. The 10 per cent tax credit satisfies any basic rate tax liability.
Savings income – remember that this income is assessed at 20 per cent on a basic-rate taxpayer and is generally paid net of 20 per cent tax.
Married allowance – this generally will not apply – but remember the exception with people born before April 1935. If it does apply, tax relief is only given at 10 per cent. From 2001/02, children's tax credit will apply but the earliest this should be included in an exam should be October 2001. It would do no harm to read up about this new tax credit however.
Age allowance – an additional allowance available to people over 65. Make sure that you know the rules on how it is restricted and which income is taken into account in the restriction. Remember the 5 per cent a year withdrawals from a single premium bond are not taken into account – only the chargeable amount. The full chargeable amount is taken into account on encashment – without top-slicing.
Capital gains tax
Indexation allowance – remember this still applies in companies. Although individuals no longer get this relief, you may get a calculation that combines this allowance to April 1998 with taper relief.
Taper relief – remember the new rules classifying shares in the company you work for as business assets qualifying for the enhanced relief.
Retirement relief – remember this is gradually disappearing. You may get a calculation to test your understanding of the interaction of all three – indexation, taper and retirement relief.
General tax planning – remember CGT disappears on death and be careful about the implications of making gifts for IHT planning which may trigger a CGT charge.
Practise straightforward calculations on death, remembering all the reliefs that may apply.
Practise more complicated calculations where there are lifetime gifts which come into charge on death.
Remember taper relief only applies on the tax payable on a gift, not on the gift itself. No relief is therefore generally available on gifts of less than the nil-rate band (£163.234,000 in 2000/01).
As a general rule, practise really hard calculations and get them off to a tee. When it comes to the exam, medium-hard calculations will seem easy.
When I did the G10 exam, I learned the duties and powers of trustees and the duties of unit trust managers – a certainty,I thought. None of them came up.
They do look like a good bet, however, for a section A question – particularly the trustees' powers and duties, given the fact that the Trustee Act 2000 is now applicable to England and Wales. The main duties and powers of trustees are now:
Wide powers of investment with no preordained authorised list. Previously, the trustees had to invest at least 25 per cent of trust assets (at outset) in narrower-range investments and at most 75 per cent in wider-range investments.
Make sure capital is only paid out to beneficiaries when the trustees have the power to do so and be aware of the potential problem of regular payments out of the trust being taxed as income (Brodies Trustees).
Duty of care to beneficiaries – looking after the interests of all the beneficiaries. Both those needing an income and those requiring capital growth.
Duty to diversify investments.
Duty to review. The needs of the beneficiaries may change over the years and the investments may no longer be appropriate. Legislation may change resulting in some investments being no longer appropriate – for example, dividend income of Discretionary and Accumulation & Maintenance Trusts paid out to beneficiaries after April 6, 2000.
So what are my predictions for the exam?
Well calculations are a certainty. In my opinion, if you can do the calculations you will pass the exam. The things you need to know to do the calculations will see you through the non-calculations part of the exam.
Practise an income tax calculation with dividends, savings income – possibly with age allowance.
Capital gains – possibly a mixture of indexation allowance to April 1998 and taper relief thereafter. The interaction of these with retirement relief might also come up.
Inheritance tax – practise the hardest sums you can. An example would be where lifetime gifts become chargeable on death with the possibility of taper relief.
Given the topicality of the Trustee Act 2000, there may be some emphasis on trustee powers.
But you will not need any of this. You will have been studying for months and are now merely re-reading to refresh your memory. It is after all nearly April Fool's Day.