CII R05 Business Protection 3

Question 1

A binding buy and sell agreement for partnership protection may cause a problem because:

Accepted Answer

HMRC may deny Business Property Relief on the deceased partner's share because there is a binding contract for its sale

Answer

Under s.113 IHTA 1984, where shares or a partnership interest are subject to a binding contract for sale at the time of death, Business Property Relief may be denied, increasing the IHT liability on the estate.

Question 2

A discretionary trust used to hold business protection proceeds provides flexibility because:

Accepted Answer

The trustees can distribute proceeds to whichever beneficiaries are most appropriate at the time of a claim

Answer

A discretionary trust gives trustees wide powers to decide which beneficiaries (within the defined class) receive the proceeds and in what proportions, allowing them to respond to circumstances at the time of claim.

Question 3

Which of the following is TRUE about a 'life of another' policy arrangement used in business protection?

Accepted Answer

Proceeds are paid directly to the policy owner, bypassing the deceased's estate

Answer

In a life of another arrangement, the surviving business partner (who owns the policy on the deceased's life) receives the proceeds directly, keeping the money outside the deceased's estate and avoiding probate delays.

Question 4

When assessing whether key person insurance premiums are deductible, HMRC applies which of the following criteria?

Accepted Answer

The insurance is on an employee's life, serves a trading purpose, and is annual or short-term

Answer

HMRC's Business Income Manual (BIM45525) sets out that for premiums to be deductible, the policy must be on the life of an employee or officer, taken out for the purpose of the trade, and be annual or short-term in nature.

Question 5

What is 'death-in-service' benefit in the context of business protection?

Accepted Answer

A tax-free lump sum, typically a multiple of salary, paid to an employee's nominated dependants if they die while employed

Answer

Death-in-service benefit pays a tax-free lump sum (commonly two to four times salary) to the employee's nominated beneficiaries if the employee dies during their employment.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Business Protection 3