By the end of this unit, learners should be able to demonstrate:

▶ an understanding of the UK financial services industry and international financial

markets;

▶ an understanding of, and ability to critically evaluate, the outcomes that distinguish
between ethical and compliance driven behaviour, and apply the CFA Code of Ethics
and Standards of Professional Conduct to business behaviours of individuals;

▶ an understanding of the Financial Conduct Authority’s (FCA’s) use of principles and

outcomes-based regulation to promote ethical and fair outcomes, and the ability to
apply the regulatory advice framework in practice for the consumer;

▶ an ability to analyse the taxation of investments as relevant to the needs and

circumstances of individuals and trusts, and an ability to apply the knowledge of
personal taxation to the provision of investment advice; and

▶ an ability to analyse the role and relevance of tax in the financial affairs of individuals
and trusts.

QUESTION ALLOCATION:

Question allocation across the syllabus is balanced on the guidance of psychometric and
industry specialists. The following question allocation for Version 20 of the IMC is provided
as a broad indication of the relative ‘weighting’ of different parts of the syllabus in IMC
examinations from 1 December 2022.
 Question
Content area Topic Topic name
allocation

Financial markets Financial Markets

1 10–20
and institutions and Institutions

Ethics and Investment

Ethics 2 5–15
Professionalism
3 The Regulation of Financial
Regulation and Markets and Institutions
legal concepts 25–35
4 Legal Concepts

Clients 5 Client Advice 15–25

Taxation 6 Taxation in the UK 10–20

OTHER INFORMATION REGARDING THIS UNIT:

Exam format: 85 questions.

Online testing using standard multiple choice, item
sets and gap-fill style questions.

Time allowed for exam: 1 hour and 40 minutes.

Pass or fail.
Grades:

Study materials: Official Training Manual v.20 is available from the

CFA UK website, including revision questions with
fully worked calculations.
Mock exam available on the CFA UK website.

Recommended study 100 hours.

hours:

Availability of exam Every working day through Pearson VUE testing

sessions: centres and every day via OnVUE remote proctoring.
TOPIC 1 FINANCIAL MARKETS AND INSTITUTIONS
By the end of this topic, learners should be able to:

▶ Demonstrate an understanding of the UK financial services industry, in its European

and global context.

▶ Demonstrate an understanding of UK and international financial markets.

1.1 INTRODUCTION TO FINANCIAL MARKETS

1.1.1 Explain the functions of the financial services industry in allocating capital within the
global economy

1.1.2 Explain the role and impact of the main financial institutions

1.1.3 Explain the role of the government including economic and industrial policy,
regulation, taxation and social welfare

1.2 THE ROLE OF SECURITIES MARKETS IN PROVIDING LIQUIDITY AND PRICE

TRANSPARENCY

1.2.1 Differentiate between a financial security and a real asset

1.2.2 Identify the key features of an ordinary share, a bond, a derivative contract, a unit in
a pooled fund and a foreign exchange transaction

1.2.3 Identify the functions of securities markets in providing price transparency and
liquidity

1.2.4 Identify the reasons why liquidity and price transparency are thought to be important
for the efficient allocation of capital when trading in securities markets

1.2.5 Identify the types of securities and the market conditions where price transparency,
liquidity and depth are likely to be high/low

1.2.6 Define liquidity risk and identify why it is important

1.2.7 Identify, explain and calculate transaction costs and their differences associated with
dealing in UK and non-UK equities, fixed income securities, different categories of
pooled funds, derivatives, property and different categories of alternative investments

1.3 TYPES OF FINANCIAL MARKETS

1.3.1 Identify the main dealing systems and facilities offered in the UK equities market and
explain the clearing and settlement procedures for UK exchange-traded securities

1.3.2 Identify the nature of the securities that would be traded on each of the main dealing
systems and facilities

1.3.3 Explain the structure and operation of the primary and secondary UK markets for gilts
and corporate bonds
1.3.4 Explain the motivations for, and implications of, dual-listing for a company

1.3.5 Compare and contrast exchange-traded and over-the-counter (OTC) markets

1.3.6 Distinguish between the following alternative trading venues: multilateral trading
facilities, systematic internalisers, organised trading facilities and dark pools

1.3.7 Distinguish between a quote-driven and an order-driven market

1.3.8 Explain the roles of the various participants in the UK equity market

1.3.9 Explain algorithmic and high-frequency trading, its benefits, risks and regulation

1.4 THE UK LISTING AUTHORITY AND PROSPECTUS REQUIREMENTS

1.4.1 Explain the role of the Financial Conduct Authority (FCA) as the UK listing authority

1.4.2 Identify the listing rules in the Financial Services and Markets Act (FSMA) 2000 as
amended and relevant EU Directives

1.4.3 Explain the main conditions for listing on the Official List, AIM and AQSE

1.4.4 Explain the purpose of the requirement for a prospectus or listing particulars

1.4.5 Identify the main exemptions from listing particulars

1.5 INFORMATION DISCLOSURE AND CORPORATE GOVERNANCE

REQUIREMENTS FOR UK EQUITY MARKETS

1.5.1 Explain the disclosures required under the disclosure and transparency rules relating
to directors’ interests and major shareholdings

1.5.2 Explain the purpose of corporate governance regulation and the role of the Financial
Reporting Council in promoting good corporate governance

1.5.3 Explain, in outline, the scope and content of corporate governance standards in the
UK

1.5.4 Explain the importance of board diversity in relation to good corporate governance

1.5.5 Explain the London Stock Exchange requirements for listed companies to disclose
corporate governance compliance

1.5.6 Explain the continuing obligations of London Stock Exchange listed companies
regarding information disclosure and dissemination

1.5.7 Explain, in outline, the UK company law requirements regarding the calling of annual
general meetings and other general meetings

1.5.8 Distinguish between annual general meetings and other types of company meetings

1.5.9 Distinguish between the types of resolution that can be considered at company
general meetings
1.5.10 Distinguish between the voting methods used at company meetings

1.5.11 Explain the role and powers of a proxy

1.6 INTERNATIONAL MARKETS

1.6.1 Explain the structure, features, and regulatory and trading environment of
international markets, including developed markets and emerging markets

1.6.2 Explain the structure and operation of the primary and secondary markets for
Eurobonds

1.6.3 Explain the settlement and clearing procedures overseas, including the role of
international central securities depositories, and the different settlement cycles and
challenges in managing global assets

1.7 THE PRINCIPAL–AGENT PROBLEM: SEPARATION OF OWNERSHIP AND

CONTROL

1.7.1 Explain how capital markets allow the beneficial ownership, and the control of capital,
to be separated

1.7.2 Distinguish between beneficial owners (principals) and the various agents involved in
the capital allocation process

1.7.3 Explain how conflict between the interests of agents and principals gives rise to the
‘agency’ or ‘principal–agent’ problem

1.7.4 Identify examples of agency costs such as: expropriation, perquisites, self-dealing
and higher cost of capital, which arise when the agency problem is known to exist

1.7.5 Identify the main reasons why it is argued that reducing the agency problem benefits
the investment profession and society as a whole

TOPIC 2 ETHICS AND INVESTMENT PROFESSIONALISM

By the end of this topic, learners should be able to:

▶ Demonstrate an ability to critically evaluate the outcomes that distinguish between

ethical and compliance-driven behaviour.

▶ Demonstrate an ability to apply the CFA Code of Ethics and Standards of

Professional Conduct to the business behaviours of individuals.

2.1 ETHICAL AND COMPLIANCE-DRIVEN BEHAVIOUR

2.1.1 Describe the need for ethics in the investment industry

2.1.2 Identify positive and negative behavioural indicators

2.1.3 Identify the ethical obligations to clients, prospective clients, employers and co-
workers

2.1.4 Critically evaluate the outcomes which may result from behaving unethically – for the
industry, individual advisers, the firm and consumers

2.1.5 Critically evaluate the outcomes which may result from limiting behaviour to
compliance within the rules – for the industry, individual advisers and consumers

2.2 CFA CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT

2.2.1 Identify the elements of the CFA Code of Ethics and Standards of Professional
Conduct

2.2.2 Explain the professional principles and values on which the CFA Code of Ethics and
Standards of Professional Conduct is based

2.2.3 Apply the CFA Code of Ethics and Standards of Professional Conduct to a range of
ethical dilemmas

TOPIC 3 THE REGULATION OF FINANCIAL MARKETS AND

INSTITUTIONS
By the end of this topic, learners should be able to:

▶ Demonstrate the ability to apply the regulatory framework in practice.

▶ Demonstrate an understanding of the UK financial services industry, in its European

and global context.

▶ Demonstrate an understanding of the Financial Conduct Authority’s (FCA)

responsibilities and approach to regulation.

▶ Demonstrate an understanding of UK and International financial markets.

▶ Demonstrate an ability to apply the FCA’s principles and rules as set out in the
regulatory framework and FCA Handbook.

▶ Demonstrate an understanding of where the Prudential Regulation Authority (PRA)

may also be involved for dual-regulated firms.

3.1 INTERNATIONAL REGULATION: EUROPEAN UNION DIRECTIVES,

REGULATION AND GUIDANCE

Following the end of the transition period with the UK’s withdrawal from the EU, CFA
Society of the UK would like to draw IMC candidates’ attention to the UK’s continuing
evolving relationship with the EU and that content written throughout LOS 3.1.1 to
3.1.7 may not have been updated in line with the most recent agreements. However
 candidates will only be tested on the information contained within this training manual
in their IMC examinations.

European Union: Harmonisation of financial services

3.1.1 Explain the legal status of EU Directives and regulations affecting the UK and define
some terminology used

European Union: The European Securities and Markets Authority

3.1.2 Explain the role and powers of the European Securities and Markets Authority
(ESMA)

European Union: The Markets in Financial Instruments Directive

3.1.3 Explain the purpose and scope of the Markets in Financial Instruments Directives
(MiFID II) and the Markets in Financial Instruments Regulations (MiFIR)

European Union: The Undertakings for Collective Investment in Transferable

Securities Directives

3.1.4 Explain the purpose and scope of the Undertakings for Collective Investment in
Transferable Securities (UCITS) Directives and the changes agreed between the UK
and EU

European Union: The Alternative Investment Fund Managers Directive

3.1.5 Explain the purpose, scope and requirements of the Alternative Investment Fund
Managers Directive (AIFMD)

European Union: The European Market Infrastructure Regulation

3.1.6 Explain the purpose and scope of the European Market Infrastructure Regulation
(EMIR)

European Union: The EU Benchmark Regulation

3.1.7 Explain the purpose and scope of the EU Benchmarks Regulation (BMR)

International: The Foreign Account Tax Compliance Act and Common

Reporting Standard

3.1.8 Explain the purpose and scope of the Foreign Account Tax Compliance Act (FATCA)
and the Common Reporting Standard (CRS)

3.2 UK REGULATION

3.2.1 Describe and distinguish between the roles of the Financial Conduct Authority (FCA),
Prudential Regulation Authority (PRA), Bank of England, Financial Policy Committee
and HM Treasury

3.2.2 Explain the different roles of the FCA and PRA for dual-regulated investment firms
3.2.3 Explain the scope of the Financial Services and Markets Act (FSMA) 2000 (as
amended)

3.2.4 Explain the scope of the Regulated Activities Order 2001 (as amended) in terms of
regulated activities and specified investments

3.2.5 Explain the function of the following bodies/persons: the Payments System Regulator
(PSR), the Competition and Markets Authority (CMA), the Department for Business,
Energy and Industrial Strategy (BEIS), the Panel on Takeovers and Mergers (PTM)
and the Information Commissioner’s Office (ICO)

3.2.6 Explain the make-up of the Takeover Panel and how it is financed

3.2.7 Explain the regulatory status of the City Code on Takeovers and Mergers (the City
Code)

3.2.8 Explain the main provisions of the City Code, including the bid timetable

3.2.9 Explain the purpose and scope of the Trustee Act 2000: the rights and duties of the
parties involved, the nature of the trust deed and the investment powers of trustees

3.2.10 Explain the significance of the Pensions Act 2004 (including scheme specific funding
requirement, the Pensions Regulator, the Pension Protection Fund), the Pension Act
2008 (including automatic enrolment and the National Employment Savings Trust
(NEST)) and the reforms to pensions from April 2015 (including freedom of choice in
how pension is taken)

3.2.11 Explain the purpose of a Statement of Investment Principles

3.2.12 Explain the purpose and scope of the FCA’s recognised industry codes

3.3 THE FINANCIAL CONDUCT AUTHORITY: OBJECTIVES AND HIGH-LEVEL

STANDARDS

3.3.1 Explain the role and statutory objectives of the FCA

3.3.2 Identify and distinguish among the blocks of the FCA Handbook

3.3.3 Identify the FCA’s Principles for Businesses (PRIN 2.1 & 4.1) and explain their
application and purpose (PRIN 1.1.1 & 1.1.2)

3.3.4 Explain the consequences of breaching the FCA’s Principles for Businesses (PRIN
1.1.7-1.1.9 and DEPP 6.2.14 & 6.2.15)

3.3.5 Explain the purpose and scope of the FCA’s rules regarding Senior Management
Arrangements, Systems and Controls (SYSC)

3.3.6 Explain the purpose of the principles and rules on conflicts of interest, including:
identifying, recording and disclosing conflicts of interest and managing them to
ensure the fair treatment of clients (PRIN 2.1.1, Principle 8 & SYSC 10)
3.3.7 Explain, in outline, the procedures for authorisation of firms, including knowledge of
the threshold conditions, and liaison with the PRA where relevant

3.3.8 Explain the regulatory requirements on individual accountability under the Senior
Managers Regime, Certification Regime, FCA Conduct rules (SUP 10C)

3.3.9 Explain the FCA Conduct rules and their application (COCON)

3.3.10 Explain the requirements relating to training and competence (TC 1–3)

3.3.11 Explain the professionalism requirements that have to be met by retail investment
advisers and investment managers (TC 1–3, including appendices)

3.3.12 Explain the requirements on authorised fund managers to publish an annual

assessment of value (COLL 6.6.20R)

3.4 REGULATION OF INVESTMENT EXCHANGES

3.4.1 Explain the role of an investment exchange

3.4.2 Explain the need for, and relevance of, investment exchanges needing to be
recognised by the FCA

3.4.3 Explain how the Bank of England regulates clearing houses in the UK

3.4.4 Identify and distinguish the roles of the main bodies involved in securities trading in
the UK, including, London Stock Exchange (LSE), ICE Futures Europe and ICE Clear
Europe

3.4.5 Identify the features of trading systems for derivatives

3.4.6 Identify the main features of the regulation of derivatives

3.4.7 Explain the arrangements for market transparency and transaction reporting in the
main derivative markets

3.4.8 Identify the main features of clearing and settlement for trading on derivatives
exchanges, and when trading over-the-counter (OTC)

3.4.9 Explain the International Accounting Standards on the regulation of derivative

markets

3.4.10 Explain the rules relating to title transfer collateral arrangements

3.5 FCA BUSINESS STANDARDS

Accepting customers for business (client categorisation)

3.5.1 Explain the purpose of client categorisation

3.5.2 Distinguish between a retail client, a professional client and an eligible counterparty
(COBS 3.4 - 3.6)
3.5.3 Apply the rules relating to treating a client as an elective professional client (COBS
3.5.3)

3.5.4 Apply the rules relating to treating a client as an elective eligible counterparty (COBS
3.6.4-3.6.6)

3.5.5 Apply the rules relating to providing clients with a higher level of protection (COBS
3.7)

3.5.6 Apply the rules relating to client agreements (COBS 8A.1)

Financial promotions and other communications with customers, including

information about the firm

3.5.7 Explain the purpose and scope of the financial promotion’s rules and the exemptions
from them (COBS 4.1)

3.5.8 Explain the ‘fair, clear and not misleading’ rule (COBS 4.2)

3.5.9 Explain the rules relating to communications with retail clients (COBS 4.5A)

3.5.10 Explain the rules relating to past, simulated past and future performance (COBS
4.5A)

3.5.11 Explain the rules relating to direct offer promotions (COBS 4.7)

3.5.12 Explain the rules relating to cold calls and other promotions that are not in writing
(COBS 4.8)

3.5.13 Explain the rules relating to systems and controls in relation to approving and
communicating financial promotions (COBS 4.10)

3.5.14 Explain the record-keeping requirements relating to financial promotions (COBS

4.11)

3.5.15 Explain the rules relating to distance marketing communications (COBS 5.1 & 5.2)

3.5.16 Explain the rules relating to providing information about the firm and compensation
information (COBS 6.1ZA)

3.5.17 Explain the rules on inducements (COBS 2.3A & 2.3B)

3.5.18 Explain the rules on adviser charging and remuneration (COBS 6.1A & 6.4)

Identifying client needs (suitability and appropriateness)

3.5.19 Explain the rules relating to assessing suitability (COBS 9A.2 & 9A.3)

3.5.20 Explain the rules relating to assessing appropriateness (COBS 10A.2)

3.5.21 Explain the rules relating to warning a client (COBS 10A.3)

3.5.22 Identify circumstances when assessing appropriateness is not required (COBS
10A.4 & 10A.6)

3.5.23 Identify circumstances where own authority or expertise is limited and there is the
need to refer to specialists

3.5.24 Distinguish between independent advice and restricted advice (COBS 6.2B)

Dealing and managing

3.5.25 Explain the rules relating to best execution (COBS 11.2A)

3.5.26 Explain the rules relating to client order handling (COBS 11.3)

3.5.27 Explain the rules on personal account dealing (COBS 11.7A)

Investment research

3.5.28 Explain the rules relating to investment research produced by a firm and
disseminated to clients (COBS 12.2)

3.5.29 Explain the rules relating to the publication and dissemination of non-independent
research (COBS 12.2)

3.5.30 Explain the disclosure requirements relating to the production and dissemination of
research recommendations (COBS 12.4)

Product governance and disclosure requirements

3.5.31 Explain the rules relating to product governance (PROD 3)

3.5.32 Explain the obligations relating to preparing product information (COBS 13.1 & COLL
4.7)

3.5.33 Explain the FCA’s approach to temporary product intervention (PROD 2)

3.5.34 Explain the rules relating to the form and content of a key features document, key
information document (PRIIPs), and a key investor information document (COBS
13.2, 13.3, 14.2 & COLL 4.7)

3.5.35 Explain the rules relating to cancellation rights (COBS 15)

3.5.36 Distinguish between packaged products and retail investment products

Record-keeping and reporting information

3.5.37 Apply the rules relating to record-keeping for client orders and transactions (COBS
11.5A)

3.5.38 Apply the rules relating to occasional reporting to clients (COBS 16A.3)

3.5.39 Apply the rules relating to periodic reporting to clients (COBS 16A.4)
3.5.40 Explain the rules relating to reporting on the progress of an authorised fund to
unitholders (COLL 4.5)

Client assets and client money rules

3.5.41 Explain the concept of fiduciary duty

3.5.42 Explain the application and purpose of the rules relating to custody of client assets
held in connection with MiFID business (CASS 6.1)

3.5.43 Explain the rules relating to the protection of clients’ assets and having adequate
organisational arrangements (CASS 6.2)

3.5.44 Explain the rules relating to depositing assets with third parties (CASS 6.3)

3.5.45 Explain the purpose of the rules relating to the use of clients’ assets (CASS 6.4)

3.5.46 Explain the rules relating to records, accounts and reconciliations of clients’ assets
(CASS 6.6)

3.5.47 Explain the application and purpose of the rules relating to the treatment of client
money (CASS 7.11)

3.5.48 Explain the rules relating to the protection of client money and having adequate
organisational arrangements (CASS 7.12)

3.5.49 Explain the rules relating to the depositing of money with third parties (CASS 7.14)

3.5.50 Explain the rules relating to the segregation of client money (CASS 7.13)

3.5.51 Explain the rules relating to records, accounts and reconciliations of clients’ money
(CASS 7.15)

3.5.52 Explain the rules relating to mandate accounts (CASS 8)

3.6 FCA SUPERVISION AND REDRESS

3.6.1 Explain the FCA’s risk-based approach to supervision and the enforcement and
disciplinary powers of the FCA

3.6.2 Explain the FCA rules relating to handling of complaints (DISP 1.3)

3.6.3 Explain the role of the Financial Ombudsman Service (DISP Introduction & DISP 2)
and the Pension Ombudsman

3.6.4 Apply the rules relating to determination by the Financial Ombudsman Service (DISP
3.6)

3.6.5 Distinguish between compulsory and voluntary jurisdiction (DISP Introduction)

3.6.6 Explain the procedure and time limits for the resolution of complaints (DISP 1.4, 1.5
& 1.6)
3.6.7 Apply the rules relating to record-keeping and reporting concerning complaints (DISP
1.9 & 1.10)

3.6.8 Explain the purpose of the Financial Services Compensation Scheme (FSCS)
(COMP 1.1.7 & 1.1.10A)

3.6.9 Identify the circumstances under which the FSCS will pay compensation (COMP
1.3.3, 3.2.1, 4.2.1 & 4.2.2)

3.6.10 Identify the limits on the compensation payable by the FSCS (COMP 10.2.1, 10.2.2 &
10.2.3)

3.7 FINANCIAL CRIME

3.7.1 Explain the various sources of money laundering and counter-terrorism regulation
and legislation (FCA rules, SYSC 6.3, Money Laundering Regulations, Proceeds of
Crime Act 2002)

3.7.2 Explain the three stages involved in the money laundering process

3.7.3 Explain the role of the Joint Money Laundering Steering Group (JMLSG)

3.7.4 Explain the main features of the guidance provided by the JMLSG

3.7.5 Explain the five offence categories under UK money laundering legislation

3.7.6 Explain the meaning of ‘inside information’ covered by the Criminal Justice Act (CJA)
1993

3.7.7 Explain the offence of insider dealing covered by the CJA 1993

3.7.8 Identify the penalties for being found guilty of insider dealing

3.7.9 Explain the FCA’s powers to prosecute market abuse (EG 12.3)

3.7.10 Describe the behaviours defined as market abuse (MAR 1.3–1.9 and the Market
Abuse Regulation)

3.7.11 Explain the enforcement powers of the FCA relating to market abuse (DEPP 6.5C)

3.7.12 Explain the main features of the Bribery Act 2010 and the UK Criminal Finances Act
2017

TOPIC 4 LEGAL CONCEPTS

By the end of this topic, learners should be able to:

▶ Demonstrate an understanding of legal concepts relevant to financial advice.

4.1.1 Explain legal persons and power of attorney

4.1.2 Explain basic law of contract and agency

4.1.3 Explain the types of ownership of property

4.1.4 Explain insolvency and bankruptcy

4.1.5 Explain wills and intestacy

4.1.6 Describe the main types of trusts and their uses

TOPIC 5 CLIENT ADVICE

By the end of this topic, learners should be able to:

▶ Demonstrate an ability to apply the financial planning process.

▶ Demonstrate an understanding of how the retail consumer is served by the financial

services industry.

▶ Demonstrate an understanding of the range of skills required when advising clients.

5.1 TYPES AND CHARACTERISTICS OF INVESTORS

5.1.1 Describe and compare different types of investors

5.1.2 Explain the obligations of a firm towards retail clients

5.1.3 Explain the main needs of retail clients and how they are prioritised

5.2 THE CLIENT’S FINANCIAL OBJECTIVES

5.2.1 Explain the importance of establishing and quantifying a client’s objectives

5.2.2 Explain the need to prioritise objectives to accommodate a client’s affordability

5.3 THE CLIENT’S CURRENT CIRCUMSTANCES

5.3.1 Explain the importance of the fact-find process in establishing a client’s current
financial circumstances and requirements

5.3.2 Identify the factors shaping a client’s circumstances

5.4 THE CLIENT’S RISK PROFILE

5.4.1 Analyse the main types of investment risk as they affect investors

5.4.2 Explain the role of diversification in mitigating risk

5.4.3 Analyse the factors affecting a client’s risk profile

5.4.4 Explain the key methods of determining a client’s risk profile

5.5 ADVICE AND RECOMMENDATIONS

5.5.1 Explain why asset allocation always comes before investment or product selection

5.5.2 Explain the key roles of charges, the use of past performance as well as the financial
stability of the provider as criteria within the fund selection process

5.5.3 Explain the importance of stability, independence and standing of trustees, fund
custodians and auditors in the fund selection process

5.5.4 Identify benchmarks and other performance measures in relation to client advice

5.5.5 Explain the importance of reviews within the financial planning process

5.6 SKILLS REQUIRED WHEN ADVISING CLIENTS

5.6.1 Describe the need for advisers to communicate clearly, assessing and adapting to
the differing levels of knowledge and understanding of their clients

5.6.2 Identify and apply suitable investment solutions to suit the different needs of retail
clients

5.7 THE OBJECTIVES OF PENSION FUNDS, LIFE ASSURANCE AND GENERAL

INSURANCE COMPANIES AND THE FACTORS THAT IMPACT UPON THEIR
INVESTMENT DECISIONS

5.7.1 Explain the features and objectives of the following funds in the UK: pension funds
(defined benefit (DB) and defined contribution (DC)), life assurance and general
insurance

5.7.2 Identify and contrast the risks of DB versus DC pension schemes for the sponsor and
beneficiary

5.7.3 Distinguish among the typical asset allocations for DB and DC pension funds, life
assurance and general insurance funds

5.7.4 Explain the return objectives of the major fund types

5.7.5 Classify funds by their income/capital growth requirements

5.7.6 Explain the effect of each of the following on a fund’s asset allocation: time horizons,
liability structure and liquidity requirements

5.7.7 Explain the taxation of the various types of funds in the UK

5.7.8 Explain the effect that taxation legislation may have on the stock selection and asset
allocation of a fund

5.7.9 Identify other types of legal requirements that affect pension funds, insurance funds
and retail clients
TOPIC 6 TAXATION IN THE UK
By the end of this topic, learners should be able to:

▶ Demonstrate an understanding of the UK tax system as relevant to the needs and

circumstances of individuals and trusts.

▶ Demonstrate an ability to analyse the taxation of investments as relevant to the

needs and circumstances of individuals and trusts.

▶ Demonstrate an ability to analyse the role and relevance of tax in the financial affairs
of individuals and trusts.

▶ Demonstrate an ability to apply the knowledge of personal taxation to the provision of

investment advice.

6.1 THE UK TAX SYSTEM AND THE TAXATION OF INVESTMENTS

6.1.1 Describe the principles of income tax applicable to earnings, savings and investment
income in the UK

6.1.2 Describe, in relation to income tax, the system of allowances, reliefs and priorities for
taxing income

6.1.3 Explain the taxation of the income of trusts and beneficiaries

6.1.4 Describe the system of National Insurance contributions (NICs)

6.1.5 Describe the principles of capital gains tax (CGT) in the UK

6.1.6 Describe the principles of inheritance tax (IHT) in the UK

6.1.7 Explain the limitations of lifetime gifts and transfers at death in mitigating IHT

6.1.8 Explain the implications of residence and domicile in relation to liability to income tax,
CGT and IHT

6.1.9 Describe the system of UK tax compliance including self-assessment, pay as you
earn (PAYE), tax returns, tax payments, tax evasion and avoidance issues

6.1.10 Describe the principles of stamp duty land tax (SDLT) as applied to property
transactions (buying, selling and leasing)

6.1.11 Describe the principles of stamp duty reserve tax (SDRT)

6.1.12 Explain how companies are taxed in the UK

6.1.13 Describe, in outline, the principles of value added tax (VAT)

6.1.14 Analyse the taxation of direct investments including cash and cash equivalents, fixed-
interest securities, equities and property
6.1.15 Analyse the key features and taxation of indirect investments including pension
arrangements, different types of individual savings accounts (ISAs), onshore and
offshore life assurance policies, real estate investment trusts (REITs), venture capital
trusts (VCTs), enterprise investment schemes (EISs), business property relief and
social investment tax relief investments

6.2 INVESTMENT ADVICE AND TAX PLANNING

6.2.1 Evaluate the tax considerations shaping clients’ needs and circumstances

6.2.2 Analyse the key principles of income tax planning

6.2.3 Analyse how the use of annual CGT exemptions, the realisation of losses, the timing
of disposals, and sale and repurchase of similar assets can mitigate CGT

6.2.4 Calculate the most common elements of income tax, NICs, CGT and IHT, including
the impact of lifetime transfers and transfers at death

6.2.5 Select elementary tax planning recommendations in the context of investments and
pension advice