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The Technical Quiz- Aug 9

To help you to keep up with the fundamentals of tax, retirement and financial planning, try answering these questions.

Question 1:
Edward and Andy are equal partners and are effecting life cover to repay business liabilities should one of them die. They are not sure about the deductibility of the premiums. Which of the following statements is true?

A) The premiums would be deductible if the cover was for one half of the liabilities on each life (as they are equal partners)

B) The premiums will not be deductible

C) The premiums to cover any potential redundancy payments will be deductible but not for loan cover

D) The premiums will be deductible as the expenditure is wholly and exclusively for the purposes of the business

Question 2:

Automatic accrual on death in the context of business planning for partnerships usually means:

A) The debts of the partnership automatically accrue to the remaining partners and the family get the deceased’s share debt-free

B) The goodwill element in the deceased partner’s capital share in the business will automatically pass to the surviving partners

C) That there is no need for life assurance of any type in connection with the business

D) That the entire value of a partner’s share in the business will automatically pass to the partner’s family

Question 3:

Sarah and Clare are both partners effecting a share purchase arrangement and they know that a key component involves life assurance in trust. A couple of years ago they each took out a policy but never got round to arranging a trust. Should they use these policies in the new arrangement?

A) No, because a mutual transfer of existing policies into trust could result in the IHT gift with reservation rules applying

B) No reason why not as long as the transaction is fully commercial

C) No, because putting existing policies into business trusts could lead to future CGT liabilities

D) No, because this could give rise to adverse IHT implications on premiums

Question 4:
In most cases, inheritance tax is not an issue on premium payments that are made into policies subject to a business protection trust because:

A) The other partners will be the default beneficiaries and so any gifts will be covered by business property relief

B) The premiums are not gifts but part of a commercial arrangement.

C) The premiums will frequently be paid by the business on the owner’s behalf

D) The arrangements are commercial at arm’s length

Question 5:

In the absence of any agreement to the contrary, what happens to a private family company when one of the shareholders dies?

A) The business continues and the deceased shareholder’s shares form part of their estate

B) The shares are automatically divided out between the remaining shareholders in proportion to the number of shares they hold

C) The deceased’s shares are cancelled

D) The business must be wound up

Questions supplied by Technical Connection

Answers: B, B, D, D, A

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