AF1 Study Plan (February sitting)

Time to open up the BTS study guide and dive into Chapter 1 - Income Tax Part 1.

Income tax is a key area to understand when approaching your AF1 examination, and there are numerous complexities that can come up.

For that reason, we have chosen to cover this topic over two chapters.

In this first chapter, we will look at the process of calculating an income tax liability, reviewing all the steps involved. The aim is to embed a methodical approach that will maximise your marks. The chapter focuses on following the correct order of taxation and then being able to apply the correct band of tax.

According to the CII advice, "candidates must demonstrate that they are capable of advising clients whose overall levels of income and capital require a more sophisticated range of advice than is normally prepared by a diploma/certificate level adviser."

This means you need to expect the case studies that feature in the AF1 exam to require a critical analysis of the financial planning options available to them.

In this chapter, we’ll cover three main areas:

1. The types of income
2. Reliefs, Personal Allowance and band extenders
3. Tax Calculations

In this second chapter on Income Tax, now that we have covered the basics and managed to progress all the way through a calculation, we look at some additional elements that can affect the calculation.

We are going to look at these main areas:

1. Employee benefits in kind
2. Self-employed income taxation
3. Rental profits
4. Tax reducers and tax charges
5. Tax planning

Time to tackle Chapter 3 - Capital Gains Tax, and Chapter 4 -  National Insurance Contributions.

Capital gains tax is a frequent area of questioning in AF1, either within its own case study or alongside other taxation questions. In Chapter 3, we will start by overviewing the basics, explaining all the elements that come together to understand the level of gains that are taxed from different transactions. We will then move on to review all the steps that make up a calculation, Finally, we’ll explore some of the special rules and reliefs.

In chapter 3, we are going to look at these main areas:

1. Disposals
2. Assets
3. Losses, exemptions and reliefs
4. Calculations and Case studies

We will then move on to Chapter 4 – National Insurance Contributions. In this chapter, we will be reviewing National Insurance Contributions. Although it is unusual for a whole AF1 question to be about this, it is often included within an income tax question, especially when looking at the options for clients moving from self-employed to a limited company set up.

In Chapter 4, we are going to look at five main areas:

1. Class 1 National Insurance Contributions – Employees, directors and employers
2. Class 2 and Class 4 – Self-employed individuals
3. Maximum contributions and multiple employments
4. Class 3 – Voluntary contributions
5. National Insurance planning

Chapter 5 is all about Inheritance Tax.

This is a meaty subject on the AF1 syllabus, and for that reason we have split IHT into a couple of chapters.

In this first chapter, we will first go through some of the concepts of IHT, with some short, worked examples, to demonstrate different parts, then in the next chapter, we will pull these concepts together and run through case study style scenarios.

In this chapter, we are going to be looking at five main areas:

1. Basic terminology
2. Lifetime transfers
3. Transfers on death
4. Nil Rate bands
5. IHT Reliefs

Chapter 6 - Inheritance Tax (Part 2!).

Having covered the ‘basics’ in Week 4, it is now time to focus in on the calculations for lifetime gifting, the impact on the gifts of death, and how this affects an IHT estate calculation, so applying all we have learned so far.

In this week, we are going to be looking at three main areas:

1. Lifetime transfers
2. Impact of death on lifetime transfers
3. Estate taxation

This week, we recommend covering two chapters.

In Chapter 7, we start by exploring the basics around trusts, particularly in relation to IHT planning, before focusing on the different types of trusts, including the internal taxation. We then focus on the taxation of various activities that might take place in and around trusts.

In this chapter we are going to be looking at four main areas:

1. Trust basics
2. Wills and intestacy
3. Types of trust
4. Insuring the liability

Moving on to Chapter 8, we are going to be looking at Residence and Domicile. The rules around determining residence changed in April 2013. It’s a popular topic to assess in AF1,and it's easy to test, as it requires you to remember lists of ‘tests of status’ and be able to apply them to the case study details.

In this chapter, we will be looking at three main areas:

1. Residence
2. Domicile
3. Tax liabilities

This week, we once again recommend that you cover two chapters. 

Chapter 9: This is an area of AF1 that is regularly tested.

If someone takes over control of assets, either due to mismanagement of finances resulting in bankruptcy or an individual voluntary arrangement, or as a proactive arrangement to allow another individual to help with financial or health decisions on either a temporary or permanent basis, there are rules to follow, and these are regularly seen in AF1 questions.

In this chapter, we are going to be looking at two main areas:

1. Bankruptcy
2. Powers of Attorney and the Mental Capacity Act

Chapter 10: Having looked at the main direct taxes, we can now start to look at some of the other taxes, including indirect taxes, so taxes that technically can be avoided.

In this chapter, we are going to be looking at three main areas:

1. Stamp duties
2. VAT
3. Corporation tax

This chapter is a brief view, as these areas are not core knowledge for the AF1 syllabus, but there may be a few marks available by refreshing your knowledge in this area.

Chapter 11: In this chapter we overview direct investment into our main asset classes as well as the main investment vehicles to reinforce how taxation affects them.

This is a meaty chapter with lots of content and this is because AF1 success relies on you being able to carefully read the case studies and identify how the various tax rules apply to every element.

We are going to look at two main areas in this chapter:

1. Direct investments
2. Indirect Investments

To score high marks on the AF1 paper, you must be able to apply your technical knowledge of tax and trusts to the scenarios posed in the exam questions, be able to explain the rationale behind your answers and handle a range of tax computations.

As the application of knowledge is so crucial, it is considered that the case study approach to learning is highly appropriate in preparing for the Advanced Diploma. 

Past papers should be priority in the two weeks leading up to the exam. By sitting past papers under timed conditions you will get a clear indication on where you need to put in any extra effort and they will help you understand the different exam questions format. You will know how they are worded and how to interpret them to provide the correct answers.

You can access free past papers below:

• February 2024
• September 2023
• February 2023
• September 2022
• April 2022

There is also a full specimen paper at the end of the BTS study guide which should be worked through under exam conditions. Once complete, review your answers and establish any areas of development that you will need to cover before sitting the actual AF1 exam.

Prior to your exam sitting, it is important that you are familiar with the software that you will be using for your exam. The CII have provided a demo for On-screen written exams, to ensure that you are familiar with the software. You can access this demo here.

On-screen exams can be sat remotely or at an exam centre. If you are sitting the exam remotely, you will need to check that the computer that you are using has everything you need to access the remote exam system. You can review the minimum system operating requirements by clicking here.

You will also need a special browser to access your exam. You can download the secure browser here before your exam date. 

If you are sitting your exam at a centre, make sure you plan your journey ahead of your exam date, ensuring you have enough time to make it to the centre on time and preventing any unnecessary stress.

Finally, good luck with your exam! We hope the hard work and time that you have put into your studies pays off.