CII R05 Business Protection 2

Question 1

What is the primary objective of shareholder protection insurance?

Accepted Answer

To ensure surviving shareholders can buy a deceased shareholder's shares and retain control of the business

Answer

To protect shareholders against falls in the company's share price

Answer

To provide dividends to shareholders if the company becomes insolvent

Answer

To cover shareholders against regulatory fines imposed by the FCA

Question 2

To avoid an immediate inheritance tax charge, how is shareholder protection most commonly structured?

Accepted Answer

Each shareholder owns a policy on their own life written in trust for the other shareholders

Answer

The company owns a single policy covering all shareholders

Answer

Each shareholder owns a policy on the life of another shareholder

Answer

All policies are held in a single discretionary will trust

Question 3

What is a key advantage of using a cross-option agreement rather than a binding buy and sell agreement for partnership protection?

Accepted Answer

A cross-option agreement avoids triggering the loss of Business Property Relief on the deceased's share

Answer

A cross-option agreement always produces a higher payout on death

Answer

A cross-option agreement removes the need for life assurance policies

Answer

A cross-option agreement guarantees a fixed sale price for the partnership share

Question 4

If key person insurance premiums are treated as an allowable business expense, how will the claim proceeds generally be treated by HMRC?

Accepted Answer

As a taxable trading receipt subject to corporation tax

Answer

As a capital receipt exempt from corporation tax

Answer

As a tax-free receipt regardless of how premiums were treated

Answer

As a dividend distribution to shareholders

Question 5

Which of the following employees is NOT eligible to be covered under a relevant life policy?

Accepted Answer

A sole trader who employs staff but has no PAYE income themselves

Answer

A company director who is employed under a contract of service

Answer

An employee aged 58 with 20 years of service

Answer

A shareholder-director owning 10% of the company's shares

Question 6

How are proceeds from a relevant life policy normally treated for inheritance tax purposes on the death of the employee?

Accepted Answer

They are paid free of IHT because the policy is held in a specific relevant life policy trust

Answer

They form part of the deceased's estate and attract IHT at 40% above the nil-rate band

Answer

They attract a 20% lifetime charge as a chargeable lifetime transfer

Answer

They are subject to IHT only if the sum assured exceeds the employee's pension lifetime allowance

Question 7

What is the maximum sum assured HMRC will normally accept under a relevant life policy without challenge?

Accepted Answer

25 times the employee's total remuneration in the tax year

Answer

£1 million, regardless of the employee's salary level

Answer

10 times the employee's basic salary excluding bonuses

Answer

There is no stated maximum; it is left to employer discretion