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This time it’s personal

Peter Cave, chartered financial planner and senior R03 examiner for the Chartered Insurance Institute, provides exam tips for passing R03, personal taxation, with a warning that candidates should not just rely on experience but instead set aside plenty of time for revision

Ageneral knowledge of tax is important for all financial advisers. Many candidates will already have experience in this field but it is important to remember that experience alone does not guarantee a pass.

Planning is at the heart of exam success. Most candidates will find questions that are easy to answer but some topics are likely to trip them up. Here are a few simple reflections:

  • Revision should be taken seriously. Formulate a realistic study plan and only take the exam when you feel ready.
  • Read the question carefully. It can be easy to fall for the first answer when some reflection may show it to be wrong, the careful and accurate answer being further down the list.
  • A number of answers rely solely on advisers showing understanding of, or doing calculations using, information expressed in the tax tables. Candidates need the skills to do the calculations and use those skills in answering the relevant questions.

Detailed and thorough preparation cannot be recommended enough. Revising is a matter of getting to grips with material and understanding how matters intermesh and that does require time, effort and hard graft. Good luck is not good enough for this paper.

Questions and responses

You have one hour to complete 50 questions 35 of multiple choice, 15 of multiple response. The essential difference between the two is that, of the four options displayed in the multiple-choice question, only one is correct, whereas a multiple response will have one or more correct answers, with as many as six options to choose between. To get one multiple-response question right, you may need to identify up to four statements as true.

Candidates should take the time to study and understand all learning outcomes of R03. Detailed below are the areas of the syllabus that are frequently tested in the exam paper.

1: Understand the UK tax system as relevant to the needs and circumstances of individuals and trusts

Comprising 15 multiple-choice questions, candidates need to demonstrate understanding of the main features of income tax, National Insurance, capital gains tax and inheritance tax.

In addition to these subjects, there are also questions on UK tax compliance, the taxation implications of residence and domicile and the different stamp duties, together with VAT and corporation tax. It is a big area, so candidates should make sure they have a thorough understanding of the whole topic.

2: Analyse the taxation of investments as relevant to the needs and circumstances of individuals and trusts

This section includes 15 questions, 10 of which are multiple response. As well as usual areas regarding deposits, pensions, annuities, shares, Isas, collective investments and insurance bonds, candidates will also be tested on their understanding of venture capital trusts , enterprise investment schemes and real estate investment trusts. Candidates should take extra care not to get tripped up over various taxation rules with these more esoteric investments

3: Analyse the role and relevance of tax in the financial affairs of individuals and trusts

This and the next line of questioning are essentially concerned with applying the knowledge about investments and taxation demonstrated in the first half of the exam paper. This unit comprises 10 questions, five multiple choice and five multiple response, which test the impact of tax planning and investments on individuals and trusts. Advisers used to dealing with investment and taxation liabilities should not get complacent when revising this topic, particularly where trusts are concerned, as these are less likely to be encountered in day-to-day activities.

4: Analyse the role and relevance of tax in the financial affairs of individuals and trusts

Here candidates are presented with 10 multiple-choice questions, half of which involve tax calculations and half tax planning in the context of investment advice.
Be sure to use the tax tables in the first instance and bring an acceptable non-programmable calculator these tools are available for a good reason and will help aid accurate answers.

Assessing the challenges

In answering the questions, candidates are required to display understanding and, in some cases, analyse small scenarios. Analytic questions require more than one step in reasoning, be it through the understanding of implications or in the workings of a calculation. Such problems are likely to require more time.

Candidates should examine all variables to work towards the correct answer. Highlighted below are some common examples that can lead candidates into error.

  • On the topic of taper relief, can the inheritance tax liability really be reduced through Be sure to use the tax tables in the first instance and bring an acceptable non-programmable calculator these tools are available for a good reasontaper relief if a one and only £100,000 potentially exempt transfer has been made six years prior to death and there has been no other use of the nil-rate tax band?
  • With regard to insurance bonds held within a trust, advisers should be aware that there are differences in tax liability on surrender if the settlors are alive or if they are deceased in the tax year of the surrender.
  • Many advisers are confident about the workings of capital gains tax but may fall foul on rules regarding chattels. Capital gains tax liabilities apply differently against chattels so take this into consideration when making calculations.

If candidates want to pass, they need to set aside plenty of study time, read the study material and test themselves. Candidates should not just rely on their previous experience.


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