Income tax Flashcards

Question

On Sarah's death, the nil rate band was £300,000. In her will, she left £70,000 in trust for her nephews and the remainder of her estate of just under £1m to her husband James. Two years prior to her death, she had made an outright gift of £56,000 to her niece. On James's death, his estate was valued at £2.2m, including the family home valued at £575,000. There was no mortgage. His estate was left to the couple's two children. James had made no lifetime gifts. what is the IHT liability on James's estate? A: £520,000 B: £523,000 C: £572,000 D: £574,600

Answer 1

C: £572,000 On Sarah’s death 40% (£120,000/£300,000) of her NRB was used (£120,000 being the £70,000 left in her will, plus the £50,000 gift after 2 x annual exemptions made to her niece), leaving 60% of the NRB in place at the date of James’s death available to James’s estate (£325,000 @ 60% = £195,000). 2 x RNRB are also available, 2 x £175,000 = £350,000. However, as James’s estate is in excess of £2m we need to reduce the RNRB by £1 for every £2 over. £2.2m - £2m = £200,000 / 2 = £100,000. £350,000 - £100,000 = £250,000. IHT is therefore due on £2,200,000 - £195,000 - £325,000 - £250,000 = £1,430,000 @ 40% = £572,000.

Answer 2

C: must give an absolute interest age 18 A trust for a bereaved minor must give an absolute interest in the trust property at the age of 18. This means that if the trust comes into effect as a result of their deaths, their daughters will have full access to the trust property once they turn 18.

Answer 3

B: some of the income will be taxed at 8.75% and some of it at 20% . Trustees of interest in possession trusts pay Income Tax at the basic rate. Rental and savings income is therefore subject to tax at 20%, and dividend income is subject to tax at 8.75%. The trustees are not entitled to tax relief for the expenses of managing the trust. Trust expenses reduce the income paid to a beneficiary and are set against income in a particular order; the correct order is dividends first, then savings income and then other income. The trustees are not entitled to use the personal savings or dividend allowances

Answer 4

B: £36,432 Joshua will lose some of his personal allowance due to his income being in excess of £100,000. It is reduced by £1 for every £2 over. £115,000 - £100,000 = £15,000 / 2 = £7,500. £12,570 - £7,500 = £5,070. £115,000 - £5,070 = £109,930. £37,700 is taxable at the basic rate @ 20% = £7,540. £109,930 - £37,700 = £72,230 is taxable at the higher rate @ 40% = £28,892. £7,540 + £28,892 = £36,432. -

Answer 5

C: There is no tax implication for the company, the director receives the income gross and is liable to tax at 8.75% if it is in excess of their dividend allowance While there are no tax implications for the company, the director will need to pay tax at the basic rate of 8.75% once the dividends exceed the dividend allowance of £1,000.

Answer 6

A: for CGT, it is the asset that is valued, whereas for IHT it is the loss to the estate For CGT, it is the asset that is valued, whereas for IHT it is the loss to the estate. A CGT disposal can be a transfer of value for IHT purposes. Holdover relief, rather than reinvestment relief, can generally be claimed if a disposal attracts an immediate charge to IHT. An IHT liability can be deducted from a capital gain, provided the donor (rather than the donee) pays it.

Answer 7

C: purchasing a furnished holiday let Out of the options shown, all are examples of ways in which Ellen could invest indirectly in property apart from purchasing a holiday home which would be a direct investment.

Answer 8

B: Transfer income producing assets to Sue D: Switch investments from income to growth funds John needs to reduce his income. Transferring income-producing assets to Sue and switching investments from income to growth funds will achieve this. The gift out of normal expenditure rule relates to IHT and John is too old to receive tax relief on his pension contributions.

Answer 9

B: Her contract is to provide services Having a contract to provide services (rather than a contract of service) is a sign of self-employment. The other options are all indicators of employment.

Answer 10

A: the future level of her annual allowance is reduced to £10,000 D: death benefits are tax free before age 75 if they are paid or designated within two years As she has entered drawdown, Hettie is now subject to the money purchase annual allowance of £10,000. She can, however, still make contributions up to this amount. If she dies after 75, her fund will be subject to Income Tax at the recipient’s rate. Death benefits are tax free before age 75 if they are paid or designated within 2 years.

Answer 11

D: Joanne must pay any CGT based on the contract date but can pay in instalments In this case, as the deferred consideration is payable more than 18 months after the disposal, HMRC will usually agree to the tax being paid in instalments. Joanne must, however, still pay any CGT based on the contract date

Answer 12

B: if he survives making the gift by at least three years there will be a reduction in any IHT payable If Julian survives at least three years after making the gift, taper relief will mean a reduced percentage of the full death rate is used. There will be no immediate charge to tax as the gift will be classed as a potentially exempt transfer (PET). Julian’s son will be liable, in the first instance, for any IHT due. There is no need to report a PET to HMRC, although it is a good idea to keep a personal record.

Answer 13

A: if the surrender occurs in the same tax year as Stan died then any gain is treated as part of Stan's income C: any potential tax charge may be avoided if the bond is assigned to non-taxpaying beneficiaries for them to trigger the chargeable event If a chargeable gain occurred in the tax year of Stan’s death, it would be taxed as Stan’s income. By assigning the bond to a non-taxpaying beneficiary and having the beneficiary then surrender the bond will mean no further tax is payable (providing the beneficiary remains under the higher rate tax threshold after the gain is added to their income). There is no escaping tax if the surrender occurs in the tax year after Stan has died as it will then fall on any UK trustees and, failing that, on any UK beneficiaries. A surrender will trigger an Income Tax liability, rather than a Capital Gains Tax liability.

Answer 14

A: The gain is split in the same proportion as their ownership Where a policy is jointly owned, the gain is split in the same proportion as the ownership and each owner is taxable on their share of the gain. Bill and Ben will therefore share the gain in the same proportion as their ownership.

Answer 15

A: he has owned the business for at least two years prior to selling Business asset disposal relief can be claimed as long as Jamie has owned the business for at least two years prior to selling. He only needs to hold 5% of the voting rights and the lifetime limit is £1m

Answer 16

A: there is no extra acquisition cost on a bonus issue of shares of the same class as an existing holding D: scrip dividends (stock dividends) are treated as new acquisitions While there is no extra acquisition cost on a bonus issue of shares of the same class on an existing holding, there is one in relation to rights issues. Bonus shares are treated as being acquired on the same date as the original shares, rather than on the date the bonus shares are issued. Scrip dividends are treated as new acquisitions

Answer 17

B: £207.00 Employers ordinarily pay class 1 National Insurance contributions (NICs) on employees’ earnings and class 1A contributions on the taxable value of non-payrolled benefits. However, because Kath is an apprentice aged under 25, her employer does not pay NICs on her earnings under the apprentice upper secondary threshold (AUST) of £967. Class 1A is due on the taxable value of the beneficial loan. £1,500 x 13.8% = £207.

Answer 18

B: £105,000 The annual allowance is £60,000 in the current tax year, but for the last three tax years was £40,000. Unused allowance can be carried forward for up to three tax years. Charles has £40,000 - £15,000 = £25,000 unused allowance that he can carry forward from 2021/22. He has £40,000 - £20,000 = £20,000 that he can carry forward from 2022/23. This gives him a total of £25,000 + £20,000 + £60,000 (his allowance for 2023/24) = £105,000 as the maximum pension contribution he can make in 2023/24.

Answer 19

C: Gift aid donations When calculating the taxable income for the year and identifying how much of the gain falls within the tax bands, gift aid donations are ignored, i.e., they do not extend the basic or higher tax bands for this calculation. Personal pension contributions still extend the bands in the normal way. The calculation takes into account both the starting rate for savings income and the personal savings allowance.

Answer 20

C: a bare trust is a potentially exempt transfer D: a discretionary trust could trigger a 20% tax charge A transfer into both a bare trust and a trust for disabled beneficiaries is a potentially exempt transfer (PET). A transfer into an interest in possession trust and a discretionary trust is a chargeable lifetime transfer (CLT). A transfer into a discretionary trust could therefore trigger an immediate charge to IHT of 20% in excess of the available nil rate band.

Answer 21

C: a partially exempt business will generally not be able to recover input tax that relates to its exempt supplies A partially exempt business will generally not be able to recover input tax that relates to its exempt supplies. If a business makes zero-rated supplies, it may reclaim input VAT on standard-rated supplies made to it. Zero-rated supplies are not exempt from VAT - VAT is charged on them at 0%. Reduced-rate supplies are charged at the 5% reduced rate of VAT

Answer 22

D: Paula's legal personal representatives only IHT payable on the estate of a deceased person is the liability of their legal personal representatives.

Answer 23

D: An award of £1,000 for 25 years' service An award of £50 for every year’s service can be made tax-free under a long service award (20 years or more). 25 x £50 = £1,250 so the £1,000 award is wholly exempt from Income Tax. The other benefits listed are all taxable

Answer 24

D: £67.50 Where a parent gifts money to a child, either directly or under trust, and that money produces an income in excess of £100, the income will be charged to tax at the parent’s rates. As Kim is an additional-rate taxpayer, the interest will be charged to tax at 45%. £150 @ 45% = £67.50.

Answer 25

D: Estate agents' fees Incidental costs of purchase and sale are deductible, this includes estate agents’ fees. Land Transaction Tax applies to Wales, rather than Scotland. Repairs are not allowed (although enhancements are). Only companies, but not individuals (which includes sole traders) may deduct indexation allowance calculated up to December 2017

Answer 26

B: cash ISA The special provision to tax the parent on income derived from an asset that the parent has given a child does not apply to Junior ISAs or Child Trust Funds. It does, however, extend to ISAs held by 16- and 17-year-olds.

Answer 27

A: Plumber's charge to repair the shower Only ongoing expenses are allowable against rental income. So, while the plumber’s repair charge is permissible, the others are all examples of enhancement costs and are therefore not allowable.

Answer 28

A: Sacrificing salary to increase the amount the company pays to company pension schemes Sacrificing salary to increase the amount the company pays to a company pension scheme is an effective NIC planning strategy as it reduces the amount of income the director receives and ultimately pays NICs on. Giving up their company car will not be effective as employees do not pay NICs on taxable employee benefits. Directors are assessed for NIC purposes on an annual basis, so being paid in ad-hoc lump sums makes no difference to the amount of NICs they pay. Finally, personal pension contributions are paid from net income (i.e. after Income Tax and NICs have been paid) and therefore do not reduce NICs

Answer 29

A: Net pay arrangement Employee contributions to occupational schemes are usually deducted before calculating tax under the net pay arrangement.

Answer 30

A: be able to use the full spouse exemption Where a spouse is domiciled outside the UK, their spousal exemption is limited to £325,000. If James were to make an election to become UK domiciled, he would have an unlimited spousal exemption.

Answer 31

B: £25,000 Where the settlor pays the immediate charge to IHT, the CLT has to be grossed up. For a net gift of £425,000 the tax is calculated as ¼ of the excess over the nil rate band. £425,000 - £325,000 = £100,000. £100,000 x ¼ = £25,000. An alternative way of looking at this is to charge the excess at 25% rather than the 20% that would apply if the trustees paid the bill.

Answer 32

B: the company must not be a close company C: it must be a listed company Income Tax relief is clawed back if the shares are sold within five years, rather than six. The company itself must not be a close company and must be listed. The disposal of VCT shares is exempt from CGT.

Answer 33

D: £45,000 Alan’s chargeable estate is £875,000 less the exempt gift to charity of £50,000 = £825,000. £200,000 AIM shares receive 100% business relief as they have been held for over 2 years. £325,000 is exempt under the nil rate band. £175,000 is exempt under the residence nil rate band. The net estate for establishing whether the 36% rate applies is £875,000 - £200,000 (AIM shares) - £325,000 (NRB) = £350,000. The 10% threshold is therefore £35,000. As the charitable bequest is £50,000, the 36% rate applies to the remaining estate of £875,000 - £50,000 - £200,000 - £325,000 - £175,000 = £125,000 @ 36% = £45,000.

Answer 34

C: Both Halle and Josh need to claim it As the transfer is not to a trust, relief is only given if both Halle and Josh claim it. As the transfer involves private company shares, there is no requirement for it to be chargeable to IHT. While Halle needs to hold at least 5% of the voting rights at the time of the gift, there is no requirement for her to be or to remain a majority shareholder. There will be no CGT for Halle to pay as holdover relief effectively passes the liability onto Josh

Answer 35

A: he can withdraw up to 5% of the original capital each year without triggering a chargeable event E: he can use top slicing on any future chargeable gain calculation 5% of the original capital invested in a single premium investment bond can be withdrawn each year without triggering a chargeable event. Assignments between spouses are not chargeable events. Top slicing can be used if the gain pushes Yared into a higher tax bracket. The basic rate of tax paid in the life find cannot be reclaimed by Yared. Nor will future gains be liable to CGT; gains on investment bonds are subject to Income Tax

Answer 36

A: She can defer the original gain util she disposes of the EIS shares The gain on selling her buy to let property can be deferred until she disposes of the EIS shares.

Answer 37

A: Paying net annual premiums of up to £2,880 into a personal pension for their son from spare income For the normal expenditure out of income exemption to apply, there must be a regular payment. The source of the regular payment must be income rather than capital. 5% withdrawals from an investment bond are a return of capital, not a source of income. Only the contributions into the personal pension meet the criteria.

Answer 38

C: The car's level of CO2 emissions The car’s level of CO2 emissions is the determining factor. Any discounts are ignored, as is the provision of a car phone and the cost of adaptations or equipment to enable a person with a disability to use the car.

Answer 39

B: £5,000 will be deducted from the list price If an employee contributes towards the capital cost of their company car, the maximum deduction from the list price is £5,000. £2,500 of Simon’s contribution is therefore ignored. -

Answer 40

B: usually paid gross but is taxable and any gains are CGT exempt Interest on gilts is paid gross, unless Julie elects to have it paid net. The interest is taxable, and gains are exempt from CGT.

Answer 41

C: applies to transfers on death D: defers Inheritance Tax util disposal IHT woodlands relief applies to the timber, but not the land. It does not apply to lifetime gifts, only on death. It defers IHT until the timber has been disposed of

Answer 42

A: liable for 39.35% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not dividend income Discretionary trusts are liable to Income Tax at the additional rate after they have used up their standard rate band. For dividend income, this is 39.35%. When a beneficiary receives income from a discretionary trust, they are deemed to have received ‘trust income’. The original source of the income becomes irrelevant

Answer 43

B: capital distributions to a beneficiary may trigger an exit charge D: if a beneficiary dies, there is no charge to IHT on beneficiary's estate The transfer into a discretionary trust is a chargeable lifetime transfer (CLT), not a potentially exempt transfer (PET). Capital distributions to a beneficiary trigger an exit charge. If a beneficiary dies, there is no charge to IHT on the beneficiary’s estate. None of the beneficiaries have a specific entitlement to any of the income or capital of the trust until the trustees use their discretion to make a payment.

Answer 44

D: £13,800 Where the trustees pay the immediate tax due, the charge is 20% of the excess over the nil rate band. From the £400,000 we can deduct 2 x annual exemptions – one for the current tax year and one for the previous tax year. £400,000 - £3,000 - £3,000 = £394,000. £394,000 - £325,000 = £69,000. £69,000 @ 20% = £13,800. -

Answer 45

C: £1,250 Gift aid donations are paid from net income under the relief at source method. A payment of £5,000 therefore needs to be grossed up (i.e. divided by 0.8) to find out the amount the charity will receive in total. £5,000 / 0.8 = £6,250. The charity can reclaim the difference (£6,250 - £5,000 = £1,250) from HMRC to boost the donation.

Answer 46

A: should inform HM Revenue & Customs either via self-assessment or form P85 of his move D: will remain entitled to a personal allowance for Income Tax purposes People leaving the UK should inform HMRC either via their self assessment tax return or using form P85. As a UK citizen, Harry will remain entitled to a personal allowance. His residence status will be determined by the statutory tests of residence, and we cannot say from the information given whether he will be a resident for the remainder of the current tax year. Once he becomes non-resident, he will no longer be able to contribute to his Lifetime ISA.

Answer 47

A: Until age 18, the trust assets are treated as belonging to the child for Inheritance Tax purposes Until the age of 18, the trust assets are treated as belonging to the child and are therefore inside of the child’s estate. Periodic and exit charges are dependent on the age of the child when the trust pays out, rather than on their age at the death of the parent. The trust only comes into effect on death, not straightaway

Answer 48

A: the future level of her annual allowance is reduced to £10,000 D: death benefits are tax free before age 75 if they are paid or designated within two years

Answer 49

D: Simon could have an Income Tax liability of up to £39.35 Simon’s Income Tax liability – assuming his dividend allowance is fully used – could be £39.35, i.e. £100 @ 39.35% which is the additional rate of tax for dividend income. All three will benefit from the dividend allowance. Toby could have a further Income Tax liability of 8.75% (basic-rate tax) and Rupert of 33.75% (higher-rate tax).

Answer 50

B: gross and he will pay 40% tax on £1,500 with the remainder exempt under his personal savings allowance Interest from a savings account is paid gross. As a higher-rate taxpayer, Steven will receive a personal savings allowance of £500. £500 of his savings income will therefore be taxed at 0%. The remaining £1,500 (£2,000 - £500) will be taxed at 40%.

Answer 51

A: £127.65 The first £175 of Kerry’s weekly earnings are not subject to employer’s NICs. Weekly earnings in excess of £175 are liable for NICs at 13.8% for 2023/24. £1,100 - £175 = £925 @ 13.8% = £127.65. -

Answer 52

D: discretionary trusts and the settlor can be one of the beneficiaries Assets within an excluded property trust remain protected from Inheritance Tax even in the event of the settlor subsequently becoming UK domiciled. Such trusts are usually discretionary trusts, and the settlor can be one of the beneficiaries.

Answer 53

A: there is a maximum annual employee contribution at the main rate B: there is no limit on contributions payable at the 2% additional rate There is a maximum annual employee contribution at the main rate but there is no limit on NICs payable at the 2% additional rate. Cliff will not be exempt from class 2 NIC if his employment earnings are under the UEL. While Cliff’s class 2 and class 4 NICs will be collected via self-assessment, any class 1 employee contributions will be collected by his employer under Pay As You Earn.

Answer 54

B: Desmond is liable if he is UK resident this tax year and has an interest in the trust D: Where gains are not taxed on Desmond, UK resident beneficiaries will be liable on the distribution of stockpiled gains The settlor is liable for any gains made if they are a UK resident and have an interest in an offshore trust. If Desmond meets these criteria, the gains will be taxed on him. If he does not, any UK resident beneficiaries will be liable instead when any gains are distributed.

Answer 55

D: Bill While the overall ISA limit is £20,000 a year, only £4,000 can be invested in a Lifetime ISA. Barney has invested £15,000 in his IFISA and £3,500 in his LISA, leaving £500 available for the LISA. While Barry has only invested £3,000 in his LISA, he only has £250 of his £20,000 left on account of his £16,750 IFISA investment. Bertie also only has £250 remaining for his LISA. Bill has £700 of his allowance remaining to invest in his LISA. He is therefore the one who can make the largest additional contribution into his LISA.

Answer 56

B: £116,500 SDLT is based on the market value of the property acquired. Sally has acquired property valued at £116,500, i.e., half the mortgage of £185,000 = £92,500 plus the £24,000 paid in cash = £116,500. However, as this is under £250,000, no SDLT is actually payable

Answer 57

B: Mabel can withdraw £15,000 without triggering a chargeable event 5% of the original investment can be withdrawn each policy year. Mabel is now in her sixth policy year. She can therefore withdraw £50,000 x 5% x 6 = £15,000. Both onshore and offshore bonds are subject to Income Tax, not CGT. Top slicing can apply to both types of bond

Answer 58

C: There is no impact on Mariam as she makes up her accounts to the end of the tax year Tax year 2023/24 is the transition year between the old current-year and the new tax-year basis. However because Mariam makes up her accounts to 31 March (or 5 April) the change of basis periods has no impact on her. For others, the basis of assessment for the tax year 2023/24 will be the profits from the end of the 2022/23 assessment period through to 5 April 2024. Any brought forward overlap profits will be deducted. A business that starts up during 2023/24 will go straight onto the tax-year basis.

Answer 59

A: class 2 National Insurance contributions, the balance of Income Tax and class 4 National Insurance contributions and any Capital Gains Tax outstanding Alex’s balancing payment includes class 2 NICs, the balance of Income Tax and class 4 NICs and any Capital Gains Tax outstanding.

Answer 60

B: Roberta could have an Income Tax liability of up to £843.75 Susie is entitled to a dividend allowance (it’s the personal savings allowance that is not available to additional rate taxpayers). Roberta could have a liability of up to £2,500 @ 33.75% = £843.75. Tracy could have a liability of up to £4,750 @ 8.75% = £415.62. Susie’s minimum tax liability is £3,000 - £1,000 = @ 39.35% = £787.00.

Answer 61

D: He is not obliged to make any contribution As John’s annual earnings for self-employment are under the small profits threshold of £6,725, he is not obliged to pay NICs on them. -

Answer 62

A: liable for 45% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not savings income Discretionary trusts are liable to Income Tax at the additional rate after they have used up their standard rate band. For savings income, this is 45%. When a beneficiary receives income from a discretionary trust, they are deemed to have received ‘trust income’. The original source of the income becomes irrelevant.

Answer 63

B: For the policy to keep its qualifying status, she cannot pay more than £36,000 in premiums over the term For qualifying policies issued since 6 April 2013, premiums are restricted to £3,600 per year. To keep her policy’s qualifying status, Sarah therefore needs to ensure she does not pay more than £36,000 in premiums over the 10-year term.

Answer 64

B: 20% basic rate tax is deducted at Step 4 for both onshore and offshore bonds D: only Saskia can benefit from the personal savings allowance E: for both Saskia and Jo, N will be measured from the start of the policy 20% basic rate tax is deducted at Steps 2 and 4 for both onshore and offshore bonds. Both types of bond benefit from the PSA in general, although Jo will not as she is an additional rate taxpayer. For both Saskia and Jo, N (the number of full policy years) will be measured from the start of the policy

Answer 65

A: legal personal representatives must pay any tax due by 30 April 2024 The IHT on Pauline’s estate is payable by her legal personal representatives and is due six months after the end of the month in which her death occurred, i.e. by 30 April 2024

Answer 66

C: £9,613.25 The pension commencement lump sum of £125,000 (£500,000 x 25%) is irrelevant. The part-time earnings and pension income are both classed as non-savings income and are charged to tax after the deduction of the personal allowance. £27,500 + £25,000 = £52,500 - £12,570 = £39,930. This fully uses up the basic rate tax band, so £37,700 is charged to tax at 20%. The remaining £2,230 (£39,930 - £37,700) is then charged at the higher rate of 40%. £37,700 @ 20% = £7,540. £2,230 @ 40% = £892. £1,000 of the £4,500 dividend income is eligible for the dividend allowance and is charged at 0%. The remaining £3,500 (£4,500 - £1,000) is charged at the higher rate for dividends of 33.75%. £3,500 @ 33.75% = £1,181.25. Total Income Tax payable is therefore £7,540 + £892 + £1,181.25 = £9,613.25.

Answer 67

A: £239,00 On Susan’s death 30% (£78,900/£263,000) of her NRB was used, leaving 70% of the NRB in place at the date of Ron’s death available to Ron’s estate (£325,000 @ 70% = £227,500). 2 x RNRB are also available, 2 x £175,000 = £350,000. IHT is therefore due on £1,500,000 - £227,500 - £325,000 - £175,000 - £175,000 = £597,500 @ 40% = £239,000.

Answer 68

C: Edmond gives his son his share portfolio but retains the right to dividends from it A gift with reservation (GWR) is one that is not enjoyed to the exclusion or virtual exclusion of the donor. By retaining the right to dividend income, Edmond has not given away the asset completely and the share portfolio will therefore be classed as a GWR. By paying full market rent, Stan’s gift is unlikely to be classed as a GWR.

Answer 69

A: £6,225 A reasonable amount for fixtures and fittings can be deducted from the buying price. £380,000 - £5,500 = £374,500. The first £250,000 is charged to SDLT at 0%, leaving £124,500 (£374,500 - £250,000) chargeable at 5% = £6,225.

Answer 70

B: £100 Stamp duty reserve tax is not payable on the purchase of corporate bonds or UK domiciled ETFs. It is payable at a rate of 0.5% of UK listed shares. Gillian will therefore pay £20,000 @ 0.5% = £100.

Answer 71

B: £60,250 The disposal proceeds are £175,000. From this we can deduct the purchase price of £100,000, the selling costs of £3,000, the buying costs of £1,750 and the enhancement expenditure of £10,000. This gives a gain of £60,250. The advertising and cleaning costs are ignored for CGT purposes but can be deducted from rental income for tax purposes

Answer 72

A: £6,000 The IHT value of the gift is the value at the date it was made, not the value at the date of Delta’s death. As the EIS had been held for more than two years it has become eligible for business relief and so we can deduct this from the value of the portfolio. Therefore, £450,000 – £100,000 (EIS holding) - £325,000 (NRB) = £25,000 chargeable to tax at 40%. £25,000 @ 40% = £10,000. Because Delta died between 4 and 5 years of making the gift taper relief applies. Only 60% of the bill is payable. £10,000 @ 60% = £6,000. -

Answer 73

C: £54,700 Expenses that can be claimed against income are not allowed as deductions for CGT purposes. We must therefore ignore the plumber repair of £45. Shaun’s gain is £150,000 - £93,000 - £1,500 - £800 = £54,700.

Answer 74

A: Tillie will not be required to pay UK tax on her employment earnings in France As a non-resident, Tillie will no longer be required to pay UK tax on any of her investment income from France. Nor will she be required to pay UK tax on her employment earnings in France. On her death, IHT will be liable on her worldwide property as she will retain her UK domicile given her intention to return to the UK

Answer 75

D: withdraw £450 from each policy without any immediate tax liability If £100,000 is invested in an onshore investment bond segmented into 100 identical policies, then each policy segment is worth £1,000 at outset. Under the 5% withdrawal facility, 5% of each segment can be withdrawn each policy year with no immediate liability to tax. As the bond is just over eight years old, we are now in the ninth policy year. Therefore £1,000 @ 5% x 9 can be taken from each policy without a tax liability at the time - which is £450.

Answer 76

B: £112,000 £10,000 @ 30% (£3,000) for the VCT, £30,000 @ 30% (£9,000) for the EIS and £200,000 @ 50% (£100,000) for the SEIS (note the SEIS investment exceeds the £200,000 limit and the tax relief is therefore capped). Gives a total amount of Income Tax relief of £112,000

Answer 77

B: sold a qualifying business a number of years ago for the sum of £2.5m Business asset disposal relief can be claimed as long as Josh has owned the business for at least two years prior to selling. He only needs to hold 5% of the voting rights. It must be a trading company. The lifetime limit is £1m and he has already exceeded this so is ineligible for further relief at this time.

Answer 78

B: she sill be buying units in the unit trusts and shares in the OEICs D: dividends from both unit trusts and OEICs are paid gross Neither unit trusts nor OEICs are exempt from CGT in the hands of the investor, although neither pay Corporation Tax on gains made within the fund. Units are purchased with unit trusts and shares are purchased with OEICs. Both are classed as collective investments, rather than life assurance-based investments and where they pay dividends, these are paid gross.

Answer 79

A: she can use her annual exemption from last tax year if she hasn't done so already D: a non-exempt gift into a discretionary trust will be a chargeable lifetime transfer Any unused annual exemption from the previous tax year can be carried forward to the current tax year once the current tax year’s annual exemption has been used. Taper relief only applies to failed PETs and CLTs on death where tax becomes payable (i.e. they exceed the available nil rate band and death is within 7 years of the gift). A gift with reservation will not be effective for IHT purposes. A non-exempt gift into a discretionary trust will be a CLT

Answer 80

B: Inheritance Tax works on the 'loss to the estate' principle C: Discretionary trusts can suffer exit charges and periodic charges D: Premiums will be classed as transfers of value but can usually be claimed as exempt under the 'normal expenditure' exemption IHT works on the ‘loss to the estate’ principle, meaning that the value for IHT purposes is the amount by which the estate has been reduced, rather than the value of what has been given away. Discretionary trusts can suffer both exit and periodic charges. Premiums into policies written under trust are transfers of value, but providing they are paid out of income will normally be exempt under the normal expenditure exemption. Because the policy is written under trust, the proceeds will be free of IHT regardless of whether the premiums are transfers of value or exempt

Answer 81

A: It must have a permanent establishment in the UK C: The company must be unlisted D: There must be fewer than 250 full time equivalent employees The company must have a permanent establishment in the UK, be unlisted and have fewer than 250 full time equivalent employees. However, the gross asset requirement is no more than £15m before an investment and no more than £16m after

Answer 82

A: £0 Robert’s earnings fall fully within the personal allowance of £12,570 for the current tax year. His savings income falls partly within the remaining personal allowance (£12,570 - £10,000 = £2,570) meaning £2,570 are taxed at 0%, with the remaining £1,430 (i.e. £4,000 - £2,570) falling within the 0% starting rate band for savings income.

Answer 83

C: Quarterly VAT traders normally pay VAT quarterly

Answer 84

C: decide for herself whether to pay Class 2 contributions assuming her actual earnings stay below £6,725 Where a self-employed person’s profits are below the small profits threshold of £6,725, there is no obligation to pay class 2 NICs. Hannah can do so voluntarily if she wishes

Answer 85

A: the beneficiary has an interest in possession HMRC’s view is that private residence relief can only apply where the beneficiary has an interest in possession in the trust (i.e. they are entitled to occupy under the terms of the settlement)

Answer 86

C: Assuming he has not used his dividend allowance, Miles has no tax to pay The dividend allowance is £1,000. Assuming Miles has £270 of his allowance still available, he will have no tax to pay on this dividend income. If he does not, he would pay tax at the additional rate of 39.35%. As a higher-rate taxpayer, Jason would pay tax at 33.75% (not 32.5%) once his dividend allowance is used.

Answer 87

B: £52,000 The annual allowance is currently £60,000, but in the previous three tax years it has been £40,000. Unused allowance can be carried forward for up to three tax years. Cary has no allowance left from 2020/21, £40,000 - £30,000 = £10,000 unused allowance that she can carry forward from 2021/22 and £40,000 - £28,000 = £12,000 that she can carry forward from 2022/23. This gives her a total of £10,000 + £12,000 + £60,000 (her allowance for 2023/24) = £82,000 of unused allowance. However, the maximum tax-relievable pension contribution she can make in 2023/24 is restricted to 100% of her earnings, i.e., £52,000.

Answer 88

C: £50,000 Interest payments are an allowable deduction from adjusted total income if the loan is taken out for qualifying purposes. A loan to Sharon’s partnership is qualifying. Adjusted total income is total income plus charitable donations made via payroll minus any pension contributions. Sharon’s adjusted total income is therefore £100,000 - £20,000 = £80,000. The amount of interest that can be deducted is capped at the higher of £50,000 or 25% of adjusted total income. 25% of £80,000 = £20,000. Therefore, the amount of interest that can be deducted is £50,000.

Answer 89

C: Toby, who has annual overseas income of £6,000 and pays tax on a remittance basis Toby will have forfeited his entitlement to the personal allowance because he has annual overseas income in excess of £2,000 and claims the remittance basis.

Answer 90

A: If total part surrenders at the end of a policy year exceed cumulative allowances If total part surrenders at the end of a policy year exceed the cumulative 5% allowances for tax-deferred withdrawals, then there is a chargeable event

Answer 91

A: will be around £1,244 C: can be avoided if she makes a personal pension contribution of £4,800 Tina’s charge will be 60% of £2,074 = £1,244.40 calculated as £56,000 - £50,000 = £6,000/£100 = 60%. She can avoid the charge altogether by reducing her income by £6,000. This can be achieved by making a personal pension contribution of £4,800, as this would be the net contribution. The charge cannot be avoided if her husband claims the benefit as it is based on the higher income in the household. It will be collected via self assessment, rather than under PAYE

Answer 92

C: only the interest from corporate bonds is always paid gross While the interest from corporate bonds is always paid gross (with no tax deducted at source), a taxpayer can elect to have interest from gilts paid net (after basic rate tax has been deducted). Both are exempt from CGT, produce interest that is taxable as savings income and can be traded on the stock market

Answer 93

A: £600,000 to a bare trust with his son as beneficiary The transfer of £600,000 into a bare trust would be a potentially exempt transfer (PET) for IHT purposes. No immediate charge to tax is due on PETs. The other transfers are all chargeable to a degree because either on their own or combined with another gift they exceed the nil rate band.

Answer 94

C: The Capital Gains Tax annual exempt amount available to the trustees will be £1,500 D: Where holdover relief is claimed when assets are transferred to the beneficiary, the holdover election must be made jointly by the trustees and the beneficiary Although IiP trustees only pay tax at the basic rate for income, capital gains are taxed at the trust rate of 20% and 28%. Trustees are not prohibited from using private residence relief. As the settlor has established two IiP trusts, the CGT annual exempt amount will be £6,000 / 2 = £3,000 / 2 = £1,500. Holdover relief needs to be a joint election by the trustees and the beneficiaries in this instance.

Answer 95

D: Sophia, who earns £38,000 a year and is a civil partnership with Marie who is retire and in receipt of pension income of £11,000 Joe is a higher-rate taxpayer and so cannot benefit. Kath earns under the personal allowance and has no need of the marriage allowance. Cleo is cohabiting and is therefore not eligible. Marie has personal allowance partly unused so is able to transfer 10% to Sophia who is a basic-rate taxpayer

Answer 96

A: £7,000 Under normal rules, Jen would pay £90,000 x 20/120 = £15,000 - £8,000 = £7,000. Under the flat-rate scheme she would pay £90,000 x 11% = £9,900. It is therefore not beneficial for Jen to join the flat-rate scheme and the least amount of VAT she can pay is £7,000 under the normal rules.

Answer 97

A: Chloe's payment is treated as if it were a donation of £5,000 Chloe’s payment is deemed to have been paid net of basic rate tax and therefore the full donation is worth £5,000. There is no need for Roy’s charity to reclaim any tax relief as his was a gross donation. Only Chloe’s basic and higher rate tax bands will be extended. Charitable donations made via payroll do not appear on an individual’s tax return.

Answer 98

A: both products may pay out dividend income C: a REIT is a type of investment trust Both products pay out a dividend and both can be ISA-wrapped. A REIT is a type of investment trust. Both products are subject to CGT on disposal. While the dividend income from a REIT is paid gross, the property income is usually paid net

Answer 99

C: Peter and Paul are civil partners and have owned two homes for the past three years and now wish to claim exemptions on one property each D: Mark has owned his house for 10 years although only lived in it for five years. Where civil partners live together, they can only claim the exemption for one property at a time, meaning that the couple will have a potential liability on one of the properties. Mark will be treated as having occupied the house for five out of ten years, meaning that only some of his gain would be exempt. The last nine months are exempt providing the property was used as Susan’s main residence at some point which suggests that Susan’s sale will be totally exempt as she lived there the remainder of the time. Jim’s absence travelling overseas was preceded, and followed by, a period of occupation meaning the house remained exempt

Answer 100

C: Class 2 and class 4 are both accounted for under self assessment Florence’s class 2 and 4 NICs are collected via self-assessment

Answer 101

B: He will owe £800 The value of input tax (the VAT paid by Sam on goods and services bought by him) can be offset against output tax (the VAT charged by Sam on goods and services sold by him) with any excess of output over input VAT paid to HMRC. Sam has an excess of output VAT paid on goods worth £4,000 (£10,000 - £6,000). VAT is charged at 20%. He therefore owes HMRC £4,000 x 20% = £800. If input VAT is greater than output VAT, HMRC will pay the difference back to Sam.

Answer 102

B: the policy will be legally assigned to Marnie who will continue to pay the premiums D: there may be a charge to Capital Gains Tax when Marnie disposes of the policy in the future There may be a charge to CGT on disposal, but not usually Income Tax. The policy will be legally assigned to Marnie who will continue to pay the premiums. As policyholder, any proceeds will be payable directly to Marnie by the life office.

Answer 103

A: £17,250 No annual exemptions are available as these would have been deducted from the first gift. The first gift would have used up £131,000 of Cass’s NRB (£325,000 – (£200,000 - £3,000 - £3,000)) = £131,000. The amount of the second gift in excess of the NRB is therefore £200,000 - £131,000 = £69,000. As Cass is paying the tax, the charge is 25%. £69,000 @ 25% = £17,250

Answer 104

B: SDRT applies to paperless transactions D: UK- domiciled exchange-traded funds are exempt from SDRT Transactions of less than £1,000 are only exempt for stamp duty (not SDRT). SDRT does apply to paperless transactions and has been abolished for UK-domiciled ETFs. Neither stamp duty nor SDRT is paid on shares bought on the AIM.

Answer 105

A: the tax position of the fund is the same for both products B: her son can withdraw the proceeds when he reaches 18 The tax position of both Child Trust Funds and Junior ISAs is the same. Proceeds can be taken from both products at 18. The annual subscription limit is not cumulative – if the full allowance is not used in one year, it cannot be made up in a later year. CTFs and Junior ISAs are exempt from the rule that income of more than £100 is taxed on the parent.

Answer 106

A: they are collected via self assessment in one lump sum on 31 January after the end of the tax year to which they relate Class 2 NICs are collected via self assessment in one lump sum on 31 January after the end of the tax year to which they relate.

Answer 107

D: Payment in relation to a death claim Out of the options shown, only the payment in relation to a death claim would be a chargeable event.

Answer 108

C: £2,000 Edie’s balancing payment is more than six months late, but less than 12. She will therefore need to pay 10%. £20,000 @ 10% = £2,000.

Answer 109

A: there will be a 20% surcharge on the value of the taxable benefit of the living accommodation Because the accommodation is furnished, an additional taxable benefit measured as 20% of the market value of the furniture arises. The use of a pool car is not a taxable benefit regardless of its emissions. The premiums on a group income protection policy are not a taxable benefit. Provision of accommodation for estate agents is not customary and is, therefore, a taxable benefit

Answer 110

D: the gift does not have to be reported to them There is no need to report a PET to HMRC, although Donna or her nephew might want to make a note of the gift for their own records

Answer 111

C: The benefit is paid directly to the employer and treated as a trading receipt The benefit from a group income protection plan is paid directly to the employer and treated as a trading receipt. The employer will then pay the benefit to Liz under PAYE meaning that Liz will receive the net amount (i.e. after Income Tax and National Insurance contributions have been deducted). The premiums paid by Liz’s employer will be classed as an allowable expense. They are not, however, treated as a taxable benefit in kind for Liz.

Answer 112

B: As a failed Potentially Exempt Transfer, there could be an Inheritance Tax charge with no credit given for the CGT paid on the earlier transfer Because David died within 7 years of making the potentially exempt transfer it has failed and is now chargeable. No credit will be given for the CGT paid.

Answer 113

C: £3,667.00 Class 4: £50,270 - £12,570 = £37,700 x 9% = £3,393.00. £55,000 - £50,270 = £4,730 x 2% = £94.60. Class 2: £3.45 x 52 = £179.40. Giving a total of £3,393.00 + £94.60 + £179.40 = £3,667.00. C is therefore the correct answer.

Answer 114

B: She receives basic rate tax relief at source Contributions to personal pensions are paid net under the relief at source method. The pension provider will reclaim the 20% deducted at source and add it to Jane’s pension fund

Answer 115

A: the maximum monthly premium is £25 C: the funds are free of UK tax on income and gains The maximum monthly premium into a friendly society policy is £25, but premiums can be paid at other frequencies, e.g., annually. The funds are free of UK tax on income and gains, but Maxine can have one policy for herself and one for each of her three children.

Answer 116

D: £520,000 Geraldine’s husband’s legal personal representatives can apply for his standard nil rate band of £325,000, plus Geraldine’s unused standard nil rate band at 60% of £325,000 = £195,000, giving a combined standard nil rate band total of £520,000.

Answer 117

D: Only the beneficiaries of Maria's trust who are UK resident As Maria died in the tax year prior to the gain, the tax liability will initially fall on any UK-resident trustees. However, as the trustees are all non-resident, it will fall on any UK-resident beneficiaries, i.e., Maria’s own children.

Answer 118

C: Henry needs to claim it To qualify for holdover relief regarding a trust, only the donor needs to make the claim. Only the recipient needs to be resident in the UK. It is not available for transfers of shares to a company. Transfers chargeable to IHT qualify for holdover relief, even if no IHT is actually paid (i.e., because the gift is within the available nil rate band).

Answer 119

C: The gift was a disposal for CGT and is not included in his estate for IHT purposes. The initial gift was a disposal for CGT purposes. However, because Henry paid market rent when he stayed at the cottage, its value is not included in his estate for IHT purposes.

Answer 120

A: her personal savings allowance can be used to reduce the amount of Income Tax payable B: any chargeable gains are subject to Capital Gains Tax in the normal way Income is taxed as savings income, meaning Maureen’s £1,000 personal savings allowance is available (if not used elsewhere). Chargeable gains are subject to CGT. The income is paid gross, so there is no tax credit. This type of structured product can be held in an ISA wrapper.

Answer 121

B: £487,500 The proportion of Pippa’s unused allowance can be transferred to David’s estate. £325,000 @ 50% = £162,500. Adding this to David’s own nil rate band of £325,000, gives his legal personal representatives an overall standard nil rate band of £487,500 to set against his estate

Answer 122

A: Eden is limited to withdrawal of £15,000 without triggering a chargeable event Eden can take 5% of the original amount invested for each policy year. She is currently in her sixth policy year. £50,000 @ 5% x 6 years = £15,000. 20% Income Tax is deemed to have been taken at source from Owen’s bond, therefore even if he is an additional-rate taxpayer, the maximum tax charge would be 25%. Both Owen and Eden can benefit from top-slicing relief. Only Eden’s bond is growing in a predominately tax-free environment.

Answer 123

D: gross but is taxable and that any gains are CGT exempt Interest on local authority bonds is paid gross. The interest is taxable. All local authority bonds are deemed to be qualifying bonds and so gains are exempt from CGT.

Answer 124

C: £2,616 Geraldine’s earnings use up the £12,570 personal allowance and £34,930 of the basic rate tax band. Tax due on the gain is therefore £500 @ 0% (personal savings allowance), plus £2,270 (the remaining basic rate tax band) @ 20% = £454, plus £22,230 @ 40% = £8,892. Total tax on gain = £9,346. From this we deduct the 20% deemed taken at source from the gain. £9,346 - £5,000 (£25,000 @ 20%) = £4,346. The annual equivalent is £25,000/5 = £5,000. Tax on the annual equivalent is £500 @ 0% plus £2,270 (the remaining basic rate tax band) @ 20% plus £2,230 @ 40% = £1,346. From this we deduct the 20% deemed taken at source from the gain. £1,346 - £1,000 (£5,000 @ 20%) = £346. Multiply back up by 5 = £1,730 to give the relieved liability. Top slicing relief is therefore £4,346 - £1,730 = £2,616.

Answer 125

B: Maurice's trustees As Maurice died in the tax year prior to the gain, the tax liability will fall on the UK-resident trustees.

Answer 126

D: The gift was a disposal for CGT and £150,000 is included in her estate for IHT purposes The initial gift was a disposal for CGT purposes. However, because Hattie retained a benefit until her death, its value at the date of death (£150,000) is also included in her estate for IHT purposes.

Answer 127

C: 20% of £6,250 less any personal savings allowance available An Interest in Possession trust pays out income net of basic-rate tax (20%). As a higher- rate taxpayer, Carlos’s further Income Tax liability is 20% of the gross income (£6,250) less any personal savings allowance.

Answer 128

D: Freya acquires the shares at Lenny's acquisition cost, and if she disposes of the shares, her gain will include Lenny's gain of £50,000 When holdover relief is claimed, the recipient of the gift (Freya, in this case) acquires the shares at the donor’s (Lenny’s) acquisition (buying) cost. So, when Freya finally sells or gives away the shares, her gain will include Lenny’s gain of £50,000. There is no reduction in the rate of CGT payable.

Answer 129

B: Claire who has been resident in the UK for five out of the last nine years C: Alex who is aged 16 E: Duncan who has unremitted overseas income for the year of £1,800 As Claire has not yet been resident for seven out of the last nine tax years, she does not have to pay the tax charge. Nor does Alex because he is under 18. Duncan is exempt as his unremitted overseas income is £1,800, i.e. less than £2,000 for the year

Answer 130

C: tax-year basis The self-employed can prepare accounts to whatever date in the tax year they choose. Up to and including 2022/23 the basis of assessment was the current-year basis of assessment. From 2024/25 the basis of assessment will be on a tax-year basis with 2023/24 a transition year. However businesses that start during tax year 2023/24 will go straight onto the tax-year basis.

Answer 131

B: £122,400 Aaron’s chargeable estate is £900,000 less the exempt gift to charity of £60,000 = £840,000. The first £325,000 is exempt under the nil rate band. £175,000 is exempt under the residence nil rate band. The net estate for establishing whether the 36% rate applies is £900,000 - £325,000 = £575,000. The 10% threshold is therefore £57,500. As the charitable bequest is £60,000, the 36% rate applies to the remaining estate of £900,000 - £60,000 - £325,000 - £175,000 = £340,000 @ 36% = £122,400.

Answer 132

C: 31 January 2025 For the 2023/24 tax year, the final filing date for submitting a tax return online is 31 January following the end of the tax year, i.e., 31 January 2025.

Answer 133

C: Within six months of the end of the month in which Bill's death occurred For failed PETs, tax due is payable by six months after the end of the month in which death occurs

Answer 134

B: Caroline made a transfer of £2,750 last year and would like to use her unused exemption from last year and this year's exemption to cover a total gift of £3,250 C: Hayden made a gift of £75,000 to his wife although they are separated and no longer live together D: Thomas made his first gift of £75,000 to his wife. He is UK domiciled and she is not Caroline’s gift would fall within the annual exemption of £3,000 for this year and the £250 remaining from last year and would therefore be exempt. Hayden’s gift will still be exempt as the couple are not yet divorced. Thomas can gift up to £325,000 to a non-domiciled spouse, so his gift is exempt. The small gift exemption cannot be combined with any other exemption; therefore, Hayley’s gift is not fully exempt.

Answer 135

D: only gains reinvested in the SEIS qualify for a 50% Capital Gains Tax exemption Only gains reinvested in the SEIS qualify for a 50% CGT exemption. Income Tax relief is given at 30% for an EIS and 50% for a SEIS. Investment into both can be carried back to the previous tax year. Neither invest in companies listed on the FTSE-100.

Answer 136

D: The over payment will be used to cover any underpayment that occurred whilst she was self-employed before any repayment is made to her Any overpayment Suzy has made in respect of her Class 1 NICs (employment) will first be used to correct any earlier underpayment of her Class 2 or Class 4 NICs (self-employment). Anything left over may then be repaid to her

Answer 137

A: Sian, a beneficiary under a trust, becomes absolutely entitled to the trust assets. When a beneficiary under a trust becomes absolutely entitled to the trust assets this is deemed to be a disposal for CGT purposes by the trustees. The sale of a main residence is exempt from CGT. An assignment between spouses of an investment bond is not a disposal for CGT purposes, nor is an asset passed on in accordance with a will.

Answer 138

C: Steve is a skilled computer technician and works for five subsidiaries of an estate agent providing IT services for which he earns £100 a week from each Steve appears to be taking advantage of the contributions threshold by fragmenting his earnings among several associated employers. HMRC will, in fact, aggregate these earnings (pool them together) so that he will pay NICs on £500 (£100 x 5) a week, less the primary contribution threshold.

Answer 139

A: Move bank accounts offshore to avoid any potential liability to UK Income Tax D: Dispose of any assets that will produce a loss and postpone the disposal of any assets that will produce a gain By moving bank accounts offshore they will not come within the remit of HMRC for Income Tax purposes. Income on certain gilts is exempt when paid to those not resident in the UK, so there is no need to dispose of these. ISAs maintain their tax-free status, but no further contributions can be made. Disposing of any assets that will produce a loss may be useful as no CGT will be due. It may be worth postponing disposals that will produce a gain until he is certain he will complete 5 years’ non-residence.

Answer 140

B: £14,000 Having withdrawn £4,000, she can reinvest this plus the £10,000 she has not already used from her £20,000 annual subscription limit. That means she can invest £14,000 in total prior to the end of the tax year.

Answer 141

D: £78,000 Peter and Jill can each invest £20,000. They can also invest in a Junior ISA for both children, i.e., £9,000 x 2 = £18,000. In addition, their eldest child can invest up to £20,000 in a cash ISA because they are 16. The correct answer is therefore £78,000

Answer 142

C: net pay arrangement Where the net pay arrangement is used, the employee’s P60 will show their remuneration after deduction of their pension payments.

Answer 143

D: There is no tax implication for T.B.S Electronics Ltd. Tobias receives the income gross and is liable to tax at 39.35% to the extent that it exceeds his dividend allowance The payment of a dividend has no tax consequences for T.B.S. Electronics Ltd. It is not tax deductible. As an additional rate taxpayer, Tobias will pay tax at 39.35% once the dividends exceed the dividend allowance of £1,000.

Answer 144

B: Enter a salary sacrifice arrangement C: Make a personal pension contribution D: Make a gift aid donation Jack needs to reduce his income, so cashing in his investment bond would not be helpful in this instance as a gain on an investment bond is deemed to be income. The other options may all be used to reduce his income

Answer 145

B: business relief While furnished holiday lets qualify for a number of tax concessions including holdover relief, business asset disposal relief and rollover relief for CGT purposes, they do not usually qualify for IHT business relief.

Answer 146

C: the full amount of the interest is an allowable deduction Adjusted total income is total income plus charitable donations through payroll less all types of pension contributions. For Simeon, this is £250,000 + £15,000 - £25,000 = £240,000. The maximum allowable deduction is therefore the higher of £50,000 and £240,000 @ 25% = £60,000. The full amount of interest is therefore deductible. The one-year limit applies to loans taken out for IHT purposes.

Answer 147

D: £5,000 Any accrued interest in the sale proceeds of a gilt is liable to income tax if the individual’s total nominal holding of gilts exceeds £5,000 on any day in the tax year

Answer 148

D: Sasha has no liability to class 1 NICs and her employer will pay secondary NICs Employees who carry on working after State pension age pay no class 1 NICs, but the employer will still have to pay secondary NICs

Answer 149

A: must be claimed on the second death The legal personal representatives of the second of the couple to die must claim any unused allowance from the first death. The transferable nil rate band is available regardless of whether the surviving spouse has re-married or not. It can only be increased on second death by a maximum of 100%. It does not matter when the first death occurred.

Answer 150

A: She must satisfy a residence condition Payment of Class 3 NICs is subject to a residence condition. They do increase entitlement to State pension. They are collected by quarterly demand or monthly direct debit. They cannot be paid in the tax year in which a person reaches State pension age or after it

Answer 151

B: gain exemption from Capital Gains Tax after three years The investment will usually be free from CGT once it has been held for three years. Dividends are not tax free (that’s a VCT) and tax relief is given at 30% on an investment of up to £1m (up to £2m if the amount over £1m is invested in knowledge intensive companies). Business relief for IHT purposes is available after two years ownership

Answer 152

B: £25,000 For English students starting a university course after 1 August 2023, student loan repayments start once income exceeds £25,000.

Answer 153

C: the GPP's scheme administrator will claim £875 from HM Revenue & Customs The scheme administrator of the GPP will claim the basic-rate tax deducted of £875 from HMRC.

Answer 154

C: The High Income Child Benefit tax charge in this scenario is £1,037.00 The tax charge falls on the higher earner, rather than the claimant. That would appear to be Caroline in this case, not Tom. To work out Caroline’s tax charge, we gross up her personal pension payment (£4,000 / 0.8 = £5,000) and deduct that from her earnings of £60,000. Her income exceeds the £50,000 threshold by £5,000. She will therefore pay a 50% charge on the Child Benefit received. £2,074 /2 = £1,037.00. As only half the Child Benefit is payable in tax, the couple would not be financially better off by not making a claim.

Answer 155

A: the trustees may acquire the assets at the settlor's base cost if holdover relief has been claimed B: holdover reis not available for newly established settlor-interested trusts The trustees may acquire the assets at the settlor’s base cost if holdover relief has been claimed, however, holdover relief is not available for new settlor-interested trusts. The minimum annual exempt amount is one half of one fifth of the individual exempt amount, rather than just one fifth. Non-exempt residential property may be subject to a 28% tax charge

Answer 156

D: Andrew is limited to a withdrawal of £35,000 without triggering a chargeable event Andrew’s policy is now in its seventh year. Under the 5% rule, he can therefore withdraw £100,000 @ 5% x 7 years = £35,000 without triggering a chargeable event. Ryan’s policy is in its sixth year. He can therefore withdraw £100,000 @ 5% x 6 years = £30,000. On full encashment however, it is the number of complete policy years that are taken into account, so Ryan could only potentially benefit from 5 years top slicing relief. Andrew may suffer an Income Tax charge of up to 25% on the bond if he has income falling within the additional-rate tax band.

Answer 157

A: £4,000 Where a disposal is only part of an asset, the cost is worked out using an apportionment formula. The deemed acquisition cost of the part disposed of is (£40,000 / (£40,000 + £60,000)) x £10,000 = £4,000. -

Answer 158

D: maximum bonus is £1,200 With a Help to Save account, the maximum monthly deposit is £50. The account can only run for four years. The bonus is paid into a nominated bank account (not the help to save account). The maximum bonus is £1,200.

Answer 159

C: £58,000 Shelley and Paul can each invest £20,000 in their own ISA accounts. They can also invest £9,000 into Junior ISAs for both Jack and Sam. The total they can invest is therefore £20,000 + £20,000 + £9,000 + £9,000 = £58,000.

Answer 160

C: £35,000 As the gift is a chargeable lifetime transfer (CLT), there is an immediate charge to IHT of 20% on the amount in excess of Amelia’s nil rate band. £500,000 - £325,000 = £175,000 @ 20% = £35,000.

Answer 161

D: 50% of the reinvested gain will be exempt from Capital Gains Tax 50% of the original gain will be exempt from Capital Gains Tax.

Answer 162

D: £585,000 Clare used 20% of her NRB (£57,000 / £285,000). Bob’s estate can therefore benefit from his own NRB of £325,000 plus 80% of £325,000 = £260,000 as the unused proportion of Clare’s. The total NRB that can be set against Bob’s estate is therefore £585,000

Answer 163

C: for those created before 22 March 2006, the trust assets are valued at the date of death of the life tenant D: gains on shares realised by trustees are charged at the rate of 20% For IIP trusts created after 22 March 2006 there is generally no CGT uplift on the death of the life tenant, meaning that there is a potential charge to CGT for any increase in value between the acquisition of the asset and the death of the life tenant. The standard rate band applies to Income Tax (not CGT) and only to discretionary trusts, not interest in possession trusts. For trusts created before 22 March 2006, the trust assets are valued at the date of death of the life tenant and there is no CGT charge on the trustees (unless there were held over gains). Shares realised by trustees are charged at the rate of 20%

Answer 164

A: she will be charged to Income Tax at either 8.75% or 20% C: on disposal of trust assets, she will be liable to Capital Gains Tax at either 10% or 18% D: if the settlor dies within 7 years, Jessica may be liable to Inheritance Tax Bare trusts are inside the beneficiary’s estate for IHT purposes. The rest of the options are correct.

Answer 165

D: stamp duty reserve tax of £27 Stamp duty reserve tax is payable on the electronic purchase of shares at a rate of 0.5% rounded to the nearest penny. £5,400 x 0.5% = £27

Answer 166

A: Income Tax, class 4 National Insurance contributions and the high income child benefit charge Payments on account include Income Tax, class 4 NICs and the high income benefit charge. Any class 2 NICs, student loan repayments and CGT due are paid alongside the balancing payment.

Answer 167

A: £4,000 Where a disposal is only part of an asset, the cost is worked out using an apportionment formula. The deemed acquisition cost of the part disposed of is (£40,000 / (£40,000 + £60,000)) x £10,000 = £4,000.

Answer 168

A: Interest is usually paid twice a year C: he can sell them at any point on the stock exchange Gilt interest is usually paid twice a year and gilts can be sold at any time on the stock exchange. Interest is taxed as savings income rather than earned income and losses are not allowable against future capital gains as gilts are exempt from CGT.

Answer 169

A: Dividends are not relevant earnings and so could restrict pension contributions Because dividends are not deemed to be relevant earnings, Edward’s pension contributions will be limited to 100% of his low salary. This may mean paying less into a pension scheme than he might otherwise like to.

Answer 170

A: no further savings can be added to the CTF after maturity C: the maturing CTF maintains its tax-exempt status until the provider receives instructions regarding the future of the investment No further savings can be added after maturity and the CTF maintains its tax-exempt status until it is either transferred to an adult ISA or encashed. Transferring to an adult ISA will not count against the normal ISA subscription limit. Alison cannot draw the funds as Evie owns the account.

Answer 171

D: Within 6 months of the end of tax year 2023/24 and paid by 31 January 2025 Phil must advise HMRC of the gain within 6 months of the end of the 2023/24 tax year (the year in which the gain arose) and pay any CGT by 31 January 2025 (the January following the end of the tax year in which the gain was made)

Answer 172

B: as automatically resident in the UK Georgia spends over 183 days a year in the UK. She is therefore likely to be treated by HMRC as automatically resident in the UK.

Answer 173

B: the trustees will have an Inheritance Tax liability of £95,000 D: a gift inter vivos policy could not have reduced the Inheritance Tax payable on death As the trust was created prior to 22 March 2006 and Gill was the life tenant, it will be included in her estate for IHT purposes. The trustees will have a liability of £800,000 - £325,000 = £475,000 @ 40% = £190,000 / 2 = £95,000. A gift inter vivos policy provides the funds to pay the IHT due on a PET. It does not reduce the tax payable on a PET, or on an estate on death

Answer 174

D: 30 November 2025 The claim should be made within two years of the end of the month in which the second death occurs, so that’s 30 November 2025.

Answer 175

A: £187.50 It is the gross income that is included in the Income Tax calculation. A purchased life annuity pays out a net income. To work out a gross payment we divide the net payment by 0.8. £150/0.8 = £187.50.

Answer 176

D: High income child benefit charge Even though Adrian pays his Income Tax, NICs and any student loan repayments via PAYE, he would have to declare any high income child benefit charge within self assessment. If he is a parent, this charge could arise as his earnings are in excess of £50,000.

Answer 177

A: 31 January 2025 CGT is due on investments on the 31 January following the end of the tax year in which the gain occurs. A gain incurred on 4 May 2023 is in the 2023/24 tax year. 31 January following the 2023/24 tax year is 31 January 2025.

Answer 178

A: Nil As a first-time buyer, Phil won’t pay SDLT on this property as he paid less than £425,000 for it.

Answer 179

A: The simplified structure should reduce their administration burden The simplified structure of the flat rate scheme means that less administration is involved. The firm is allowed to account for VAT as a percentage of their taxable turnover rather than the difference between input and output VAT. HMRC determine the flat rate for each type of business.

Answer 180

A: The rate is 0.5% of the purchase price B: Stamp duty is paid by the purchaser Stamp duty is charged at 0.5% of the purchase price and is paid by the buyer, not the seller. The stockbroker acting for the buyer is normally responsible for paying stamp duty to HMRC.

Answer 181

C: £683.33 May 2010 disposal proceeds £6,250 less acquisition costs of £2,500 gives a gain of £3,750. Chattels relief available, restricting gain to (£6,250 - £6,000) x 5/3 = £416.66 (rounded down). July 2011 disposal proceeds £14,000 less acquisition costs of £5,000 gives gain of £9,000. Chattels relief not used as it gives a higher figure (£14,000 - £6,000) x 5/3 = £13,333.33. Total gain £416.66 + £9,000 = £9,416.66. Deduct the CGT annual exempt amount of £6,000 to give a gain of £3,416.66. Taxed at 20% = £683.33.

Answer 182

A: If gross rent per year is no more than £7,500, they will not be charged to tax B: Rent-a-room relief will not apply if the accommodation is unfurnished C: Rent-a-room relief is automatic Under rent-a-room relief, where gross rent for the room is no more than £7,500 it will be tax free. The accommodation must be furnished, and relief is automatic. For married couples/civil partners, the £7,500 is shared between them. Letting the room for business purposes would make them ineligible for rent-a-room relief

Answer 183

B: Gains are calculated on the difference between the acquisition cost and the market value D: If the settlor subsequently acquires an interest, any holdover relief claimed when the trust was set up will be clawed back Capital gains are usually calculated on the difference between the acquisition (buying) cost and the market value of the disposal proceeds. Trustees can elect for holdover relief on any disposal. If a trust becomes settlor-interested (i.e. the settlor acquires an interest in the trust), any holdover relief claimed at outset will be clawed back by HMRC. Trust gains are taxed at the rates of 20% and 28% rather than 10% and 20%.

Answer 184

A: the income is classed as investment income, not earned income Property income is classed as investment income rather than earned income and so does not count as relevant UK income for making pension contributions (unless income is from furnished holiday lettings). Property purchases and rent may be subject to VAT. The default basis of calculating property income is the cash basis. Income from all UK properties is pooled together rather than being taxed separately.

Answer 185

C: His liability is 45% of £2,500 less the 20% tax already deducted Paul’s income is in excess of £125,140, making him an additional-rate taxpayer. An interest in possession trust pays out income net of basic rate tax (20%). As an additional rate-taxpayer, Paul’s total liability is 45% of the gross income less the tax already deducted. The gross income is £2,000/0.8 = £2,500.

Answer 186

B: widow The settlor has an interest if they are a beneficiary in any way or enjoy a benefit directly or indirectly from the trust. This includes if their minor unmarried children or spouse/ civil partner can benefit. Spouse does not include a separated spouse, a widow, or a widower

Answer 187

A: On a commercial sale The sale proceeds will be used as the disposal price when calculating CGT in relation to a commercial sale. In the other circumstances listed, the market value will be used

Answer 188

B: only offshore bonds benefit from gross roll up C: both products benefit from top slicing relief Only offshore bonds benefit from gross roll up (onshore bonds are deemed to have tax deducted at the basic rate within the fund). Both products benefit from time apportionment relief and top slicing relief. Offshore bonds are not better protected than onshore bonds in the event of the company failing. -

Answer 189

B: one employer is instructed to deduct employees' NICs at only 2% on earnings above the primary contribution threshold The rules impose an upper limit on the amount of class 1 NICs at the main rate, not the additional percentage. Only employee NICs are affected by any deferment applied for. A primary contribution threshold is available for both employments as they are unconnected. The correct answer is that one employer is instructed to deduct employees’ NICs at only 2% on earnings above the primary contribution threshold

Answer 190

A: £453.25 will not be taxed each month A PAYE code of 543L means that £5,439 / 12 = £453.25 will not be subject to tax each month. (The final digit is always deemed to be a 9 so 543L becomes £5,439)

Answer 191

B: be carrying on a genuine new trade C: have gross assets of not more than £350,000 D: have fewer than 25 full-time employees The company must be carrying on a genuine new trade, have gross assets of not more than £350,000 and have fewer than 25 full-time employees. However, it must have been trading for less than 3 years, rather than for less 2 years.

Answer 192

B: There is no Capital Gains Tax at the time of the transfer, but the acquisition cost of the trust is reduced to £110,000 Where holdover relief is claimed, no CGT is payable at the time of the gift, but the acquisition cost to the recipient is reduced by the amount of the held-over gain. The acquisition cost to the trust is therefore £110,000 (£150,000 - £40,000)

Answer 193

A: they will only ever be charged to basic rate tax on the rental income Trustees of an interest in possession trust only ever pay tax at the basic rate on income, including rental income. A higher-rate taxpaying beneficiary will owe an additional 20% of the gross rental income. Trustees of an interest in possession trust are not entitled to tax relief for the expenses they incur in managing the trust, although trust expenses are deducted before paying out the beneficiary’s income. Trustees are not entitled to a personal allowance.

Answer 194

A: if a beneficiary dies, there is no charge to Inheritance Tax on the beneficiary's estate D: Inheritance Tax may be chargeable each time a capital distribution is made to a beneficiary Because none of the beneficiaries have an interest in possession, there is no charge to IHT on their death. There is also no requirement to pay an income to a particular named beneficiary. The creation of the trust is a chargeable lifetime transfer, rather than a potentially exempt transfer. IHT may be chargeable each time a capital distribution is made to a beneficiary (the exit charge).

Answer 195

C: £15,432 £50,000 + £20,000 = non-savings income of £70,000. £70,000 less personal allowance of £12,570 = taxable income of £57,430. £37,700 @ 20% = £7,540. £57,430 - £37,700 = £19,730 @ 40% = £7,892. Giving total tax due of £7,540 + £7,892 = £15,432

Answer 196

D: 10% Where a capital gain falls fully within the basic rate tax band, the charge to tax will be 10% (18% for residential property that is not fully exempt). With total taxable income of £20,000 (i.e. income after deduction of the personal allowance), Johnny has £17,700 (£37,700 - £20,000) of the basic rate tax band left. The full £10,000 of his net gain is therefore charged to tax at 10%. -

Answer 197

B: she may have a liability to lifetime tax in relation to the discretionary trust C: a settlor would effectively pay any lifetime tax at a higher rate than Ella would as a trustee There is no lifetime tax, exit or periodic charges for a trust for a vulnerable beneficiary. They do, however, apply to discretionary trusts. Trustees pay lifetime tax at 20%, whereas for settlors it is effectively 25%. There is no lifetime tax, exit or periodic charges for a trust for a vulnerable beneficiary. They do, however, apply to discretionary trusts. Trustees pay lifetime tax at 20%, whereas for settlors it is effectively 25%. -

Answer 198

B: Norway If a UK employee is temporarily sent to work in the EU or Norway, they can obtain a certificate from HMRC so that they can continue to pay UK National Insurance contributions. This is normally for a period of up to two years, but for Norway it is three. There is no exemption for Iceland or Liechtenstein.

Answer 199

C: she may be able to carry forward unused allowance from the previous three tax years to boost her contributions D: the earliest age at which she can take her benefits is currently 55 A scheme pension is usually the only option for a defined benefit member. Harriet is not restricted in this way, as she is in a GPP scheme. If she dies on or after age 75, her fund will be subject to Income Tax in the hands of the recipient. But, if her death is before then, the funds are not subject to Income Tax. She may well be able to carry forward unused allowance if she was a member of another pension scheme in the three tax years prior to joining the GPP. The earliest age at which she can take her benefits is currently 55

Answer 200

B: maturity of the bond will be treated as a chargeable event C: surrender of the bond may give rise to a 25% Income Tax liability The life assurance fund suffers tax on most income and capital gains at 20%. The maturity of the bond will be treated as a chargeable event. If, on surrender, the gain falls within the additional rate tax band, Tom could be liable to tax of up to 25%. Assigning policies between spouses or civil partners does not give rise to a chargeable event.

Answer 201

B: Leo, who earns £25,000 per annum wishing to make a single gross contribution of £20,000 Leo’s contribution is below 100% of his earnings. He will therefore receive full tax relief on it. Alex is over 75 and therefore is not eligible for tax relief. Steve’s desired contribution is in excess of 100% of his earnings and he cannot use carry forward because he has not previously contributed to a pension. Alison’s gross annual contribution is in excess of £3,600 which is the maximum amount on which tax relief can be received for a non-earner

Answer 202

B: Having lived in Madrid for 3 years, Phil breaks up with his Welsh partner and starts to rent out his UK property By renting out his UK property, Phil is maintaining a strong tie to the UK. It is therefore unlikely that a domicile of choice has been acquired.

Answer 203

B: £35,000 Where the trustees pay the immediate tax due, the charge is 20% of the excess over the nil rate band. The gift is after exemptions, and we ignore the bare trust as this was a PET. £500,000 - £325,000 = £175,000 @ 20% = £35,000.

Answer 204

£5,500 Eleanor’s main residence: first £250,000 at 0%, then £50,000 at 5% = £2,500. The buy-to-let £100,000 @ 3% = £3,000. Total £5,500

Answer 205

D: Sarah, aged 16, receives money from her parents and invests it in a cash ISA where it earns £115 interest per annum Because the interest in the cash ISA is over £100, it will be treated as Sarah’s parents’ income rather than Sarah’s. Steven’s son’s income would be treated as his son’s income because it is under £100. Stefan’s paper-round money would belong to him. The £100 rule does not apply to money from a grandparent, so Simon’s grandson’s money would be treated as his grandson’s money.

Answer 206

B: Within 60 days of completion Where completion of a non-exempt UK residential property is on or after 27 October 2021, CGT must be reported and paid within 60 days. This contrasts to 30 days for non-exempt UK residential property sold between 6 April 2020 and 26 October 2021, and 31 January following the end of the tax year when the gain was made for all other gains.

Answer 207

B: £2,011.67 March 2009 disposal proceeds of £9,275 less acquisition cost of £2,150 gives a gain of £7,125. Chattels relief available, restricting gain to (£9,275 - £6,000) x 5/3 = £5,458.33 (rounded). June 2010 disposal proceeds of £14,500 less acquisition cost of £3,900 gives gain of £10,600. Chattels relief is not used as it gives a higher figure (£14,500 - £6,000) x 5/3 = £14,166.66 (rounded down). Total gain £5,458.33 + £10,600 = £16,058.33. Deduct the £6,000 CGT annual exempt amount = £10,058.33. Tax at 20% as Clemence is an additional rate taxpayer = £2,011.66 (rounded down).

Answer 208

C: If a local authority bond is bought at issue and held to maturity, the capital should be repaid If a local authority bond is bought at issue and held to maturity, the capital should be repaid. The other statements are false. Both pay interest gross, both are fully taxable as savings income and a corporate bond, like a local authority bond, pays interest for a fixed period

Answer 209

C: his personal savings allowance can be used to reduce tax due on encashment D: if adviser charges are taken from the policy, they count towards the 5% allowance A single premium life assurance policy is non-qualifying. 5% withdrawals are tax deferred, rather than tax free. His PSA can be used to reduce tax due on encashment and if adviser charges are taken from the policy, they will count towards the 5% allowance

Answer 210

A: Income Tax under the pre-owned assets tax (POAT) Dominic is most likely to face a charge under the pre-owned assets tax (POAT). This is an Income Tax charge on the benefit Dominic gets by having free enjoyment or use of an asset he used to own.

Answer 211

C: Amy Aaron has £15,000 of his allowance left, Alex £12,000, Amy £16,000 and Alice £14,000. Amy could therefore make the largest additional investment into a Cash ISA this tax year

Answer 212

A: Elaine is deemed to have received gross income of £3,000 A discretionary trust is deemed to pay out an income net of tax deducted at source of 45%. To work out the gross income we divide £1,650 by 0.55 = £3,000. As a basic-rate taxpayer Elaine can reclaim the difference between the 45% deducted at source and the basic rate of 20%, i.e., she can potentially re-claim 25%. -

Answer 213

A: the older life died first and, for Inheritance Tax purposes, it is assumed they died at the same time In the event of a married couple or civil partners dying in such circumstances, general law assumes that the older life dies first whereas for IHT purposes it is assumed they died at the same time to avoid a double tax charge

Answer 214

A: Gains on disposal are subject to normal Capital Gains Tax rules Gains on the disposal of an offshore reporting fund are subject to CGT and taxed at 10% or 20% rather than being subject to Income Tax at 20%, 40% or 45% if it were a non-reporting fund. The income is taxed whether it is paid out or not

Answer 215

A: living accommodation While employers can choose to put the taxable value of most benefits in kind provided to employees through their payroll and these do not then need to be reported on form P11D, living accommodation and beneficial loans cannot be payrolled. From the options given, Jake’s employer must have provided him with living accommodation

Answer 216

B: Helen must now pay IHT on £400,000 less any available nil rate band Gifts to bare trusts are PETs. As such, no lifetime tax is chargeable and therefore cannot be deducted from tax due on death. IHT is payable on the value of the failed PET at the date of the gift (i.e. £400,000), rather than at the date of death. Any available nil rate band can be deducted. As the beneficiary of the bare trust, Helen is responsible for paying any IHT due on the failed PET. The trustees are not responsible for paying the IHT due so paying the value of the trust directly to Helen will have no impact.

Answer 217

B: £12,000 Although the transfer into the discretionary trust took place more than 7 years before Tamsin died, it was within 7 years of the PET so we still need to deduct its value from the nil rate band that can be used against the PET. £325,000 - £150,000 = £175,000. Deduct £175,000 from the PET of £325,000, leaving £150,000 chargeable to IHT at 40%. £150,000 @ 40% = £60,000. As the PET was made between 6 and 7 years of death, taper relief applies and only 20% of the amount due is payable. £60,000 @ 20% = £12,000.

Answer 218

D: as a UK resident and ash the income arises in the UK, it is fully taxable As Scarlett is resident in the UK for tax purposes, her UK employment income will be charged to UK Income Tax. Her domicile status is not relevant in this instance.

Answer 219

B: on the same day D: in the share pool Disposals are matched with acquisitions on the same day, acquisitions within the following 30 days and acquisitions within the share pool

Answer 220

D: £56,000 The IHT value of the gift is the value at the date it was made, not the value at the date of Bernadette’s death. Therefore, £500,000 – the nil rate band of £325,000 = £175,000 chargeable to tax at 40%. £175,000 @ 40% = £70,000. Because Bernadette died between 3 and 4 years of making the gift taper relief applies. Only 80% of the bill is payable. £70,000 @ 80% = £56,000

Answer 221

B: £34,432 Jonas loses some of his personal allowance due to his income being in excess of £100,000. It is reduced by £1 for every £2 over £100,000. However, we can deduct the gross value of his personal pension contribution (£10,000 / 0.8 = £12,500). £120,000 - £12,500 - £100,000 = £7,500 / 2 = £3,750. £12,570 - £3,750 = £8,820. £120,000 - £8,820 = £111,180. £37,700 + gross pension contribution of £12,500 = £50,200 taxable at the basic rate @ 20% = £10,040. £111,180 - £50,200 = £60,980 is taxable at the higher rate @ 40% = £24,392. £10,040 + £24,392 = £34,432.

Answer 222

B: the gift(s) must be outright, made during her lifetime and cannot be a gift into a trust C: the exemption can be used any number of times in respect of different donees As the exemption can be used any number of times in respect of different donees, there is no need for the exemption to be carried forward. The gift must be outright, made during her lifetime and cannot be a gift into trust. The small gifts exemption cannot be combined with the annual exemption to make a larger gift.

Answer 223

C: he could defer a Capital Gains Tax liability on any asset by reinvesting the gain in EIS shares D: EIS shares qualify for business relief for Inheritance Tax after two years Stanley could defer a CGT liability on any other asset by reinvesting the gain in EIS shares. They are not exempt from SDRT and investors benefit from Income Tax relief at 30% and not 50%. However EIS shares are outside of the estate for IHT purposes after two years.

Answer 224

B: they will only be liable for the basic rate of tax D: trust expenses are set against UK dividends first Trustees of an interest in possession trust are liable to Income Tax at the basic rate. Trust expenses are set against UK dividends first. The trustees cannot claim a personal allowance and dividend income is subject to tax at the basic rate of 8.75%. There is no tax credit, nor can the dividend allowance be claimed.

Answer 225

B: £1,000 taxed at 20% and £1,000 taxed at 45% Discretionary trusts benefit from a starting rate tax band of £1,000 where Income Tax is charged at the basic rate (20% for savings income). Thereafter it is charged at the additional rate (45% for savings income). £1,000 of the £2,000 is therefore charged to tax at 20%, with the remaining £1,000 charged to tax at 45%.

Answer 226

D: 5 April 2024 Negligible value claims can be backdated to either of the two tax years before the year in which the claim was made. The time limit for Maureen to backdate a claim to the 2021/22 tax year is therefore 5 April 2024.

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