BLP: Individual Taxation

Question 1

What is the purpose of Capital Gains Tax (CGT)?

Answer 1

To tax the profit made on the disposal of a chargeable asset which has increased in value during ownership.

Question 2

What are the four conditions required for CGT to arise?

Answer 2

A chargeable disposal of a chargeable asset by a chargeable person giving rise to a chargeable gain in the tax year.

Question 3

How is a chargeable disposal defined?

Answer 3

A sale or gift of an asset (or any transfer that disposes of an asset), subject to specific exclusions (e.g., gifts on death).

Question 4

Which assets are typically excluded from CGT?

Answer 4

Principal private residences (with relief), private motor cars, certain government securities, ISAs, and personal possessions under £6,000.

Question 5

What is the ‘base cost’ of an asset for CGT purposes?

Answer 5

The original purchase price plus incidental acquisition costs (e.g., legal fees, surveyor fees).

Question 6

What disposal-related expenditures can be deducted when calculating a CGT gain?

Answer 6

Incidental costs of disposal, such as agents’ commission or legal fees.

Question 7

What subsequent expenditures can be deducted?

Answer 7

Expenditure that enhances the asset’s value (e.g., building a conservatory) and costs to establish, preserve, or defend title to the asset.

Question 8

How are connected‐person disposals treated for CGT?

Answer 8

Disposals between connected persons are deemed to occur at market value, regardless of actual consideration received.

Question 9

What is a ‘chargeable gain’?

Answer 9

The amount by which the net disposal proceeds (after allowable deductions) exceed the total allowable expenditure (base cost + enhancements).

Question 10

What relief applies when an individual disposes of an asset on death?

Answer 10

No CGT on death; personal representatives are deemed to acquire the asset at its market value (the ‘uplift’).

Question 11

What is the annual exempt amount for individuals in 2024/25?

Answer 11

£3,000 of gains are exempt from CGT for individuals.

Question 12

How are capital losses treated?

Answer 12

Losses are first set against gains in the same tax year; any unused losses are carried forward indefinitely to offset against future gains.

Question 13

What are the two CGT rates for individuals?

Answer 13

18% for gains that fall within the unused basic‐rate band; 24% for any gains above that threshold.

Question 14

How is the applicable CGT rate determined for an individual?

Answer 14

By adding taxable gains to taxable income: gains within the remaining basic‐rate band are taxed at 18%, the remainder at 24%.

Question 15

What is Business Asset Disposal Relief (BADR)?

Answer 15

A relief that reduces CGT to 10% on qualifying disposals of all or part of a trading business, qualifying business assets, or qualifying shares in a trading company, subject to a £1 million lifetime allowance.

Question 16

List one key condition for BADR on disposal of business assets.

Answer 16

The business (or shares in a trading company) must have been owned and used for at least two years prior to disposal.

Question 17

What is Investors’ Relief (IR)?

Answer 17

A relief that reduces CGT to 10% on gains from disposals of qualifying unlisted trading company shares acquired on or after 17 March 2016, held for at least three years, subject to a £1 million lifetime allowance.

Question 18

What distinguishes IR from BADR?

Answer 18

IR applies only to external investors in unlisted trading companies, not to directors/employees, and requires shares issued after 17 March 2016 and held for three years.

Question 19

What is Rollover Relief (‘Replacement of Business Assets’)?

Answer 19

A relief that defers CGT by allowing gains on disposal of qualifying business assets to be rolled over into replacement assets, reducing the base cost of the new asset by the amount of the gain.

Question 20

What types of assets qualify for Rollover Relief?

Answer 20

Land and buildings used in a business, fixed plant and machinery, goodwill, and certain intangible assets used in the business.

Question 21

What is Hold-over Relief (‘Gift of Business Assets’)?

Answer 21

A relief that allows a donor of qualifying business assets to defer CGT by reducing the donee’s base cost to the donor’s deemed disposal value, thereby postponing liability until the donee’s disposal.

Question 22

For Hold-over Relief, which assets qualify?

Answer 22

Gifts of business assets, or gifts of assets used in a business that has ceased trading, provided certain conditions are met.

Question 23

What is the CGT consequence of a sale at undervalue to an unconnected person?

Answer 23

It is treated as if sold at market value; if sold to a connected person, market value is substituted for actual consideration.

Question 24

When is CGT payable for individuals?

Answer 24

By 31 January following the end of the tax year in which the disposal occurs (6 April to 5 April).

Question 25

What is the purpose of Capital Gains Tax exercises?

Answer 25

To practice the step-by-step computation of gains: net proceeds minus expenditure minus losses minus annual exemption, then applying the correct rate.

Question 26

Define ‘share capital’ in company law.

Answer 26

Money raised by issuing shares to investors, representing the funds available to a company for its operations.

Question 27

What does ‘nominal (par) value’ of a share represent?

Answer 27

The fixed minimum subscription price of the share, often 1p, 5p, or £1; it does not reflect market value.

Question 28

How is ‘equity security’ defined for pre-emption rights?

Answer 28

Shares carrying uncapped rights to dividends or capital on winding up, or rights to subscribe/convert into such shares.

Question 29

What is the requirement for a private company to allot new shares without shareholder authority?

Answer 29

Under s 550 CA 2006, directors have automatic authority to allot one class of shares in a private company unless restricted by the Articles.

Question 30

What are statutory pre-emption rights on allotment?

Answer 30

Under s 561 CA 2006, equity securities must be offered pro rata to existing shareholders before offering to outsiders, unless disapplied.

Question 31

How can a company disapply statutory pre-emption rights?

Answer 31

By special resolution under s 570 (general disapplication) or via the Articles under s 567 (private company permanent exclusion).

Question 32

What constitutes ‘financial assistance’ under CA 2006?

Answer 32

Any gift, loan, guarantee, or security that reduces a company’s net assets to facilitate acquisition of its shares (s 677).

Question 33

Which companies are prohibited from giving financial assistance?

Answer 33

Public company targets and their subsidiaries (s 678); for private company targets, only public subsidiaries (s 679).

Question 34

What is the purpose exception to financial assistance?

Answer 34

Assistance is permissible if the principal purpose is not to facilitate share acquisition, or facilitation is merely incidental to a larger purpose (s 678(2), s 679(2)).

Question 35

What is a ‘financial promotion’ under FSMA?

Answer 35

Any invitation or inducement to engage in investment activity, which must be approved by an authorized person or fall under an exemption (s 21 FSMA).

Question 36

What is the general prohibition under s 19 FSMA?

Answer 36

No person may carry on a regulated activity in the UK unless they are an authorized person or exempt.

Question 37

How is a ‘regulated activity’ defined under FSMA?

Answer 37

An activity specified in Part II of the RAO carried on by way of business in relation to a specified investment from Part III of the RAO (s 22 FSMA).

Question 38

Name two specified investments under FSMA/RAO.

Answer 38

Shares (Article 76 RAO) and regulated mortgage contracts (Article 88 RAO).

Question 39

Name two specified activities under FSMA/RAO.

Answer 39

Dealing in investments as principal (Article 14 RAO) and advising on the merits of investments (Article 53 RAO).

Question 40

What is the ‘necessary part’ exclusion (Article 67 RAO)?

Answer 40

A regulated activity carried out as a necessary part of professional services not separately remunerated and integral to the main service is excluded.

Question 41

What is the ‘sale of a body corporate’ exclusion (Article 70 RAO)?

Answer 41

Exclusion for transactions involving 50%+ voting shares or control between connected bodies corporate, partnerships, or individuals.

Question 42

What is the Promoted Client Business (DPB) exemption under FSMA?

Answer 42

A solicitor may carry on regulated activities incidental to professional services (s 327 FSMA) if no third-party commission is received, and activities comply with SRA Scope Rule 2.

Question 43

What additional condition does SRA Scope Rule 2 impose for exempt regulated activities?

Answer 43

The regulated activity must arise out of or be complementary to professional services provided to that specific client.

Question 44

What is the difference between direct and indirect taxes?

Answer 44

Direct taxes (e.g., income tax, CGT, corporation tax) are imposed by reference to a taxpayer’s circumstances; indirect taxes (e.g., VAT) are imposed on transactions.

Question 45

How is Total Income calculated for income tax?

Answer 45

Sum of gross receipts from all sources, including salary, rent, interest, dividends, and benefits in kind (before any deductions).

Question 46

What deductions determine Net Income?

Answer 46

Available tax reliefs: interest on qualifying loans and pension contributions from Total Income.

Question 47

How is Personal Allowance reduced for high incomes?

Answer 47

Reduced by £1 for every £2 of Net Income above £100,000; completely eliminated at Net Income ≥ £125,140.

Question 48

What is Taxable Income?

Answer 48

Net Income minus the Personal Allowance (after any reduction for incomes above £100,000).

Question 49

How is Taxable Income split for income tax computation?

Answer 49

Split into non-savings, savings, and dividend income: Taxable Income minus (savings + dividend) gives non-savings income.

Question 50

What is the Personal Savings Allowance (PSA)?

Answer 50

Basic-rate taxpayers get £1,000 of savings income at 0%; higher-rate taxpayers get £500; additional-rate taxpayers get none.

Question 51

What is the Dividend Allowance?

Answer 51

All individuals receive the first £500 of dividend income at 0% for 2024/25 (previously £1,000).

Question 52

What are the 2024/25 income tax rates for non-savings income?

Answer 52

20% on £0–£37,700; 40% on £37,701–£125,140; 45% on income above £125,140.

Question 53

What are the 2024/25 income tax rates for savings income?

Answer 53

0% on PSA amount; then 20% (basic), 40% (higher), or 45% (additional) depending on remaining bands.

Question 54

What are the 2024/25 income tax rates for dividend income?

Answer 54

0% on first £500; then 8.75% (basic), 33.75% (higher), or 39.35% (additional).

Question 55

What is the ‘cake method’ for income tax computation?

Answer 55

Visual tool layering non-savings, savings, and dividend income to apply tax rates in order: base non-savings, then savings, then dividends, filling each band sequentially.

Question 56

What is a Potentially Exempt Transfer (PET) for IHT?

Answer 56

A lifetime gift to an individual that is exempt from IHT if the donor survives seven years; otherwise, it becomes chargeable on death.

Question 57

What is a Lifetime Chargeable Transfer (LCT)?

Answer 57

A transfer into a trust (post-22 March 2006) that is immediately chargeable to IHT at 20% on value exceeding the nil-rate band.

Question 58

What is the nil-rate band (NRB) for IHT in 2024/25?

Answer 58

£325,000 at 0%; any value above is taxed at 40% on death or 20% on LCTs.

Question 59

What is the Residence Nil-Rate Band (RNRB)?

Answer 59

An additional £175,000 IHT allowance for assets passed to direct descendants, subject to taper and availability conditions.

Question 60

How does ‘cumulative total’ affect IHT?

Answer 60

Sum of all chargeable transfers in the previous seven years reduces the available NRB for the current transfer.

Question 61

What is Business Property Relief (BPR) for IHT?

Answer 61

A relief that reduces the taxable value of qualifying business assets by 100% (or 50% for certain quoted shares and land & buildings) if owned for at least two years.

Question 62

Which assets qualify for 100% BPR?

Answer 62

A business or interest in a business, shares in an unquoted company, and certain business-related land/tools/machinery.

Question 63

Which assets qualify for 50% BPR?

Answer 63

Shares in a quoted company (if the shareholder has control) and land or buildings used in a business.

Question 64

How is IHT calculated on death?

Answer 64

Value the estate at open-market value (Step 3), deduct debts/expenses (Step 4), apply reliefs (Step 5), apply RNRB (Step 6), then apply NRB and charge 40% on the remainder (Step 7).

Question 65

How is IHT calculated on a failed PET or LCT?

Answer 65

Calculate cumulative total (Step A), identify value transferred (Step B), apply exemptions/reliefs (Step C), apply NRB and charge 20% (Step D), apply taper relief (Step E), credit tax paid (Step F).