Tests 1-5 Flashcards
1
Q
ABC Ltd has provided John, an employee, with rent-free accommodation. How will this benefit be taxed?
Select one:
a. There is generally a tax charge which John will have to pay.
b. There is a tax charge which both John and ABC Ltd will have to pay.
c. There is no tax liability for either John or ABC Ltd.
d. There is generally a tax charge which ABC Ltd will have to pay.
A
a. There is generally a tax charge which John will have to pay.
chapter reference 1G4A
2
Q
Which individual will NOT be entitled to a personal allowance?
Select one:
a. Tord, who is a national of Norway.
b. Mary, who lives in Malta and is a widow of John who was a Crown servant.
c. Greg, who lives in the Isle of Man.
d. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.
A
d. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.
chapter reference 1H1
3
Q
George earns £160,000 a year, and in addition to this he receives total dividend income of £2,000. His tax liability on the dividend income alone is:
Select one:
a. £650.
b. £900.
c. £0.
d. £762.
A
c. £0.
chapter reference 1I1
4
Q
If John earns £586 per week, how much could his income increase by before he reaches the upper earnings limit?
Select one:
a. £381.
b. £184.
c. £306.
d. £120.
A
a. £381.
chapter reference 2B2A
5
Q
An immediate capital gains tax liability would definitely NOT arise when Stuart:
Select one:
a. sells the copyright to his new invention for £25,000 to his friend, Jake.
b. gives his coin collection, worth £40,000, to his son Michael.
c. makes a successful claim on his household insurance for accidental destruction of a valuable painting.
d. transfers half of his £50,000 unit trust holding to his wife, Lesley.
A
d. transfers half of his £50,000 unit trust holding to his wife, Lesley.
chapter reference 3A
6
Q
Ian has sold an investment property. The sale was agreed on 25 February, the deposit was received on 12 March, the contract was signed on 30 March and the balance of the purchase price was received on 4 April. When did the disposal occur for capital gains tax purposes?
Select one:
a. 4 April.
b. 30 March.
c. 25 February.
d. 12 March.
A
b. 30 March.
chapter reference 3A1
7
Q
Craig has sold an investment property, making a gain of £35,400. What will be the taxable gain once Craig’s capital gains tax annual exempt amount has been deducted?
Select one:
a. £22,900.
b. £23,700.
c. £23,100.
d. £23,400.
A
c. £23,100.
chapter reference 3C2
8
Q
Robert gifted £4,000 in 2019/20 to his daughter Sue on her marriage, then gifted £1,500 in 2020/21 to his son George, and would like to gift some more money to his grandson Peter in the 2021/22 tax year. How much can he gift within his available inheritance tax annual exemption limit for lifetime transfers?
Select one:
a. £5,000.
b. £3,000.
c. £4,500.
d. £6,000.
A
c. £4,500.
chapter reference 4B1B/4B1E
9
Q
Clive has inherited a business from his father. He has been advised that the business is NOT eligible for any business relief for inheritance tax purposes. This could be because:
Select one:
a. his father was a sole trader.
b. the majority of the inheritance consisted of property.
c. his father owned the business for only 18 months before he died.
d. the business was set up as a partnership.
A
c. his father owned the business for only 18 months before he died.
chapter reference 4C1
10
Q
Rachel is an Irish citizen and is attending a 12 month university course in England. She intends to return home when she completes her course. For income tax purposes, Rachel is currently regarded as:
Select one:
a. temporarily domiciled in the UK.
b. resident in the UK.
c. non resident in the UK.
d. domiciled in the UK.
A
b. resident in the UK.
chapter reference 5A2
11
Q
Michael is not currently resident in the UK. He has disposed of an investment property and has found that he is still liable for capital gains tax in the UK. This is because he moved away:
Select one:
a. four and a half years ago.
b. seven and a half years ago.
c. six and a half years ago.
d. five and a half years ago.
A
a. four and a half years ago.
chapter reference 5C2C
12
Q
If each of these individuals who claim the remittance basis have received notification from HMRC that they will have to pay an annual tax charge, who will pay the highest amount?
Select one:
a. Maria, who has been resident in the UK for the last 11 years.
b. Stavros, who has been resident in the UK for the last 8 years.
c. Pierre, who has been resident in the UK for the last year.
d. Lorenzo, who has been resident in the UK for the last 14 years.
A
d. Lorenzo, who has been resident in the UK for the last 14 years.
chapter reference 5D2
13
Q
Neil is self-employed and is very late in paying the £10,000 balancing charge which was due on 31 January 2021. What would be the penalty on this amount if it was still outstanding in mid February 2022?
Select one:
a. £1,500.
b. £1,000.
c. £2,000.
d. £500.
A
a. £1,500.
chapter reference 6A4
- A 5% penalty is levied on any tax remaining unpaid more than 30 days after the balancing payment is due. If tax remains unpaid after a further five months then another 5% penalty is charged, and again where tax remains unpaid after a further six months (i.e. eleven months after the initial penalty date).
14
Q
Gavin has just bought a new home in Kensington from personal funds for £4.5m. Assuming this is his only property, how much stamp duty land tax is payable on the purchase?
Select one:
a. £214,500.
b. £225,000.
c. £453,750.
d. £540,000.
A
c. £453,750.
chapter reference 7A1
15
Q
Before any VAT, Samantha spends £60 on shoes and clothes for her grandchild, £600 on domestic fuel for her home heating system, and £400 to the crematorium for her mother’s funeral. How much VAT will she pay on these items?
Select one:
a. £120.
b. £212.
c. £30.
d. £200.
A
c. £30.
chapter reference 8A2B/ 8A2C/ 8A2D
16
Q
Robert, a higher-rate taxpayer, has received a stock dividend to the value of £9,000. Assuming this is the only dividend payment he received, what does this mean and what is his tax liability on this stock dividend?
Select one:
a. Shareholders are offered the option of receiving discounted prices instead of a cash dividend and he has a liability of £2,275.
b. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,275.
c. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,925.
d. Shareholders are offered the option of receiving discounted prices instead of a cash dividend and he has a liability of £2,925.
A
b. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,275.
chapter reference 9B1A/9B1B
17
Q
Under what circumstances might income received by a landlord from a letting be treated as trade income?
Select one:
a. Where the tenant is not connected in any way with the landlord.
b. Where the landlord provides substantial services in connection with the letting.
c. Where the landlord also lives within the same premises.
d. Where the tenant has signed a formal tenancy agreement.
A
b. Where the landlord provides substantial services in connection with the letting.
chapter reference 9C8
18
Q
A tax charge may be triggered when a pension fund invests in which type of asset?
Select one:
a. Gilts.
b. Residential property.
c. Cash.
d. Commercial property.
A
b. Residential property.
chapter reference 10B8
Investment rules
A single set of rules applies to all types of pension scheme. Investments in residential property (with a few exceptions) and in tangible moveable assets - e.g. antiques, art, jewellery, and fine wine - may trigger penal tax charges. Borrowing to fund property purchase or any other investment cannot exceed 50% of the net value of the fund.
19
Q
William has an endowment policy and he has been advised that the proceeds could be subject to income tax on maturity as the policy does not meet the qualifying rules. What would NOT be a contributing factor to this potential tax liability?
Select one:
a. The term of the policy is 8 years.
b. The policy is on a single life basis.
c. The policy was taken out in May 2013.
d. The premiums are £400 per month.
A
b. The policy is on a single life basis.
chapter reference 10G1
Qualifying life policies are broadly life policies with regular level premiums payable at least annually for at least ten years. For qualifying policies issued on or after 6 April 2013, an individual’s premiums accross all policies are restricted to £3,600 per year.
20
Q
Jenny invested £100,000 into a non-qualifying UK life assurance investment bond on 1 August 2013. She took a partial withdrawal of £10,000 on 1 September 2015 and a further partial withdrawal of £16,000 on 1 March 2019. She surrendered the bond in June 2021 for £90,000. What chargeable gain, if any, did Jenny make on her investment?
Select one:
a. £16,000.
b. Nil.
c. £10,000.
d. £6,000.
A
a. £16,000.
chapter reference 10G2E
21
Q
Bill is married and has taxable income after deduction of his personal allowance of £58,000 in 2021/22. He invested £20,000 into an onshore single premium life assurance bond on 31 October 2011, and for 10 years he took the maximum permitted withdrawals without triggering an immediate tax charge. On encashment on 14 November 2021 the policy is worth £22,000. For the purposes of calculating the tax due on encashment, he should be advised that:
Select one:
a. it may have been advantageous to assign the bond to his wife before encashment.
b. his personal savings allowance cannot be used.
c. top-slicing relief will reduce the tax charged on his gain.
d. a copy of the chargeable event certificate will be sent to HMRC.
A
a. it may have been advantageous to assign the bond to his wife before encashment.
chapter reference 10G2G/10G2I
22
Q
Bob, an additional-rate taxpayer, has received £50 from the non tax-exempt element from his UK real estate investment trust. How will this payment be treated for tax purposes?
Select one:
a. As UK dividend income.
b. As savings income.
c. As property income.
d. The payment will be ignored for tax purposes as it was below £100.
A
a. As UK dividend income.
chapter reference 10J3
Distributions from REITs consist of two elements:
1. A payment from the tax-exempt element.
- For individual investors, this is classed as property income and paid net of 20% tax.
- Non-taxpayers may reclaim the excess tax deducted.
- ISA investors receive payments gross.
2. A dividend payment from the non-exempt element.
- This is taxed as any other dividend.
Gains on REIT shares are subject to CGT in the normal way for investors.
23
Q
Cormack is interested in having an exposure to international commercial property in his portfolio to provide potential gains and ongoing income, but has neither the time or the knowledge to buy directly. The most appropriate solution for him would be a[n]:
Select one:
a. insurance company property fund.
b. special purpose vehicle.
c. property security fund.
d. UK real estate investment trust.
A
c. property security fund.
chapter reference 10J5
24
Q
Promoters of tax avoidance schemes must disclose their scheme to HMRC, primarily so that HMRC can:
Select one:
a. assess the risk to investors.
b. block unacceptable schemes through legislation.
c. inform the EU.
d. include the details on their information leaflets.
A
b. block unacceptable schemes through legislation.
chapter reference 11A4A
25
Graham, a higher-rate taxpayer, transfers £40,000 of shares to his civil partner Stuart, a non-taxpayer, who sells them making a gain of £20,000. If neither has any other realised gains, what tax liability is due on the transfer and then on the subsequent sale?
Select one:
a. The transfer is free from capital gains tax for Graham, and there is also no liability on the sale for Stuart.
b. The transfer is free from capital gains tax for Graham, and there is a £2,000 capital gains tax liability on the sale for Stuart.
c. The transfer is subject to 20% capital gains tax on gains in excess of the annual exempt amount, and there is a £770 capital gains tax liability on the sale for Stuart.
d. The transfer is free from capital gains tax for Graham, and there is a £770 capital gains tax liability on the sale for Stuart.
d. The transfer is free from capital gains tax for Graham, and there is a £770 capital gains tax liability on the sale for Stuart.
chapter reference 11B1A
26
If a family qualifies for the family element of the child tax credit they could receive up to how much per annum?
Select one:
a. £6,530.
b. £750.
c. £545.
d. £2,830.
c. £545.
chapter reference 11B2A
**Child Tax Credit (CTC)** has reen replaced by Universal Credit for most people making new claims. However, parents who already get Working Tax Credit (WTC) can add on a claim for CTC. This is simply reported as a change in circumstances.
Where CTC is already paid, or parents are able to add on a new claim, CTC is payable to parents with children living with them, aged under 16, or between 16 and 19 and in full-time education.
There are two elements to CTC, the family element and the child element. The standard amount of the family element is £545 in 2021/22 (but only if at least one child was born before 6 April 2017). The child element is payable per child and the standard amount is £2,845 in 2021/22. However, the child element is not given for a third (or subsequent) child born on or after 6 April 2017.
27
Keith and Jala are married with two children. Keith earns £48,000 and Jala earns £45,000. Which of these changes to Keith's or Jala's income would have the most impact on their entitlement to child benefit?
Select one:
a. Keith and Jala both receive a 5% annual pay increase.
b. Jala receives commission from her employer of £9,000, while Keith's salary is increased to £50,000.
c. Keith receives a bonus from his employer of £7,000 while Jala's remains unchanged.
d. They both start new jobs with different employers, each with a new salary of £50,000 pa.
c. Keith receives a bonus from his employer of £7,000 while Jala's remains unchanged.
chapter reference 11B2B
28
David is a non-earner and pays £1,200 gross into his registered pension scheme. How much more can he pay net of tax into the pension scheme?
Select one:
a. £2,640.
b. £1,680.
c. £1,920.
d. £2,400.
c. £1,920.
chapter reference 11D1
29
Charlie is a tax adviser and is working with Tom and Mary on their inheritance tax planning. What is the first thing Charlie should advise Tom and Mary to do, before taking action to mitigate inheritance tax?
Select one:
a. Spread the assets among their relatives in order to maximise use of the tax free thresholds.
b. Ensure they have enough income and capital for the remainder of their lives.
c. Put as many of their assets as possible in trust.
d. Effect a life policy to pay the inheritance tax when it becomes due.
b. Ensure they have enough income and capital for the remainder of their lives.
chapter reference 11E2
30
Haris is 45 and has a salary of £52,000. He has a company car giving him a taxable benefit of £5,000. He pays interest of £1,500 on a loan to pay inheritance tax and £4,000 into a retirement annuity plan that doesn't operate tax relief at source. What is his income tax liability for 2021/22?
Select one:
a. £8,832.
b. £10,300.
c. £8,032.
d. £13,060.
c. £8,032.
chapter reference 12A5A
31
Deb, age 57, has a gross income of £130,000 and she has made a net personal pension contribution of £10,000. What will her personal allowance be in 2021/22?
Select one:
a. £12,570.
b. £2,500.
c. £3,820.
d. £8,750.
c. £3,820.
chapter reference 12A5A
32
Maud is an 80 year-old widow. In 2021/22 she has pension income of £12,720, receives interest of £3,000 from her bank account and dividends of £1,500 from shares in the company she used to work for. What is her income tax liability for 2021/22?
Select one:
a. £930.
b. £630.
c. £30.
d. £160.
c. £30.
chapter reference 12A5A
33
George, aged 50 and self-employed, has profits of £75,000 for 2021/22. What is George's total National Insurance contribution liability for 2021/22?
Select one:
a. £4,157.78.
b. £5,888.88.
c. £3,821.78
d. £4,316.38.
d. 4316.38
chapter reference 12A5B
34
Jo, who has taxable income after deduction of the personal allowance of £34,200 for 2021/22, purchased a diamond ring for £6,500 in 2005. She sold the ring for £28,000 in August 2021, with no other gains or losses in 2021/22. Jo's capital gains tax liability will be:
Select one:
a. £920.
b. £1,900.
c. £1,490.
d. £1,550.
c. £1,490.
chapter reference 12A5C
35
Peter, a bachelor, gifted a lump sum of £1,000,000 to his son Adam in February 2017. What would be the inheritance tax liability on this gift if Peter died in August 2021 leaving no residential property, assuming this was the only gift Peter had ever made?
Select one:
a. £267,600.
b. £162,000.
c. £160,560.
d. £270,000.
c. £160,560.
chapter reference 12A5D
36
If a tax free investment provided a fixed rate at 3.2% per annum, what gross rate would a higher-rate taxpayer need to receive from a taxable investment to earn an equivalent amount each year?
Select one:
a. 4%.
b. 5.33%.
c. 6.4%.
d. 4.26%.
b. 5.33%.
chapter reference 12B3A
37
Karen, 16, has two sisters: Joanne, 18, and Lisa, 21. They should be aware that:
Select one:
a. Joanne can invest more into ISAs this tax year than her sisters.
b. Karen and Joanne can invest more into ISAs this tax year than Lisa.
c. they can all invest the same maximum amount into ISAs this tax year.
d. Karen can invest more into ISAs this tax year than her sisters.
d. Karen can invest more into ISAs this tax year than her sisters.
chapter reference 12B3B
38
Doug disposes of some shares in May 2021, incurring a capital gains tax liability. He could defer some or all of this tax liability by investing the gains in an enterprise investment scheme, provided he does so between:
Select one:
a. May 2021 and May 2024.
b. May 2021 and May 2023.
c. May 2020 and May 2023.
d. May 2020 and May 2024.
d. May 2020 and May 2024.
chapter reference 12B4A
The gain must be reinvested in the period that starts one year before and ends three years after the disposal. The investor still has to pay CGT on the deferred gain when they dispose of the EIS shares.
39
On the encashment of a life assurance policy, what factor will have NO impact on whether tax is payable or, if it is, by what amount?
Select one:
a. How much capital gains tax annual exempt amount is available in the year of encashment.
b. How much top slicing relief is available.
c. The taxation regime of the underlying assets held within the life funds.
d. The tax position of the investor at the time they encash the policy.
a. How much capital gains tax annual exempt amount is available in the year of encashment.
chapter reference 12B5
40
If Tim owns a furnished holiday let and he wants to make pension contributions based on the income from this, the property must:
You must select ALL the correct options to gain the mark:
a. be let for at least 105 days in a tax year. This can be averaged with other properties.
b. be situated in an acknowledged holiday resort.
c. be let to individuals who are on holiday only.
d. not be subject to 'long term lets' for more than 155 days in a tax year.
e. be let on a commercial basis.
f. be situated in the UK only.
a. be let for at least 105 days in a tax year. This can be averaged with other properties.
d. not be subject to 'long term lets' for more than 155 days in a tax year.
e. be let on a commercial basis.
chapter reference 9C12
Furnished holiday lettings are taxed like other lettings but qualify for certain tax advantages. To qualify as furnished holiday lettings:
- The accomodation must be situated in the UK or in the European Economic Area (EEA), and it must be furnished and let on a commercial basis.
- The accomodation must be available for commercial letting to the public, generally as holiday accomodation, for periods of at least 210 days in total in the tax year.
- The period in which the accomodation is actually let should be at least 105 days in total in the ta year. If this requirement is not met in respect of a given property in one year, an average can be taken over two or more properties, which may enable all to qualify. Another option is to make a period of grace election is a property has reached the occupancy threshold in previous year.
- The accomodation may be let for continuous periods of more than 31 days, but such periods must not total more than 155 days in the tax year.
- The property does not need to be in acknowledged holiday resort and the tenants do not actually have to be on holiday.
41
The anti-avoidance rules are designed to prevent people exploiting pension flexibility by:
You must select ALL the correct options to gain the mark:
a. capping the contributions of higher earners at £240,000 gross a year.
b. taxing the death benefit if a pension member dies before age 75.
c. introducing a tapered reduction to the amount of the annual allowance for higher earners.
d. not allowing further contributions once a pension is in payment.
e. imposing a reduced annual allowance once a pension is accessed.
c. introducing a tapered reduction to the amount of the annual allowance for higher earners.
chapter reference 10B1
e. imposing a reduced annual allowance once a pension is accessed.
chapter reference 10B1
42
Julie is 17 and Sue is 23. They have each invested £2,000 into their ISAs, and both wish to invest more in the 2021/22 tax year. What are their options?
You must select ALL the correct options to gain the mark:
a. Julie can invest a further £27,000.
b. Julie can invest a further £18,000 but it must be in cash ISAs only.
c. Sue can invest a further £18,000.
d. Julie can only invest a further £7,000.
e. Sue can invest a further £18,000 but at least £9,000 of it must be in stocks and shares.
a. Julie can invest a further £27,000.
c. Sue can invest a further £18,000.
chapter reference 10C1C
43
A chargeable event for a non-qualifying life assurance policy occurs in the event of the:
You must select ALL the correct options to gain the mark:
a. surrender of the policy.
b. maturity of the policy.
c. policy being assigned to the policyholder's spouse.
d. policy being assigned by way of mortgage to a bank.
e. death of the life assured.
f. payment of a critical illness benefit.
a. surrender of the policy.
b. maturity of the policy.
e. death of the life assured.
chapter reference 10G2C
44
Gemma, whose taxable income is £40,000 after deducting the personal allowance, has realised a chargeable gain of £20,000 on an onshore life policy. When calculating the taxation due on this gain, she:
You must select ALL the correct options to gain the mark:
a. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.
b. must pay income tax on the full gain at 40%.
c. can offset some of the gain by taking into account her capital gains tax annual exempt amount.
d. must top-slice the gain by the number of years held to determine the rate of tax she will pay on the gain.
e. can take into account the personal savings allowance if it has not already been used up.
a. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.
e. can take into account the personal savings allowance if it has not already been used up.
chapter reference 10G2G
45
When considering the taxation of annuities:
You must select ALL the correct options to gain the mark:
a. pension annuities are taxed in full as earned income.
b. a cash sum payable under a guaranteed annuity is fully taxable as investment income.
c. an annuity for a beneficiary under a will is taxed in full as savings income.
d. purchased life annuities are taxed in full as earned income.
e. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
a. pension annuities are taxed in full as earned income.
c. an annuity for a beneficiary under a will is taxed in full as savings income.
e. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
chapter reference 10G4
**Annuities**
**Purchased life annuities** - Partly taxed as savings income and partly tax free
**Purchased annuities certain** - Partly taxed as savings income and partly tax free
**Pension annuities** - Taxed in full as earned income
**Deferred annuities** - Taxed as a purchased life annuity when the annuity is taken
**Annuities for beneficiaries under trusts or wills** - Taxed in full as savings income
46
Meena has sold some shares making a gain of £50,000 and has an income tax liability of £30,000. She wishes to invest in an enterprise investment scheme [EIS]. What do you advise her to consider?
You must select ALL the correct options to gain the mark:
a. There may be pre-arranged exit provisions in order to minimise risk.
b. Meena will be able to invest £50,000 and receive income tax relief of £10,000.
c. Enterprise investment schemes are ideally suited for medium risk investors.
d. To eliminate her income tax liability completely, Meena would need to invest £100,000 in qualifying investments.
e. Meena can defer the capital gains tax due on up to 100% of the gain, and disposals of qualifying EIS shares are normally exempt from capital gains tax if held for three years.
f. Meena does need not to be resident in the UK, but must be liable to UK income tax.
d. To eliminate her income tax liability completely, Meena would need to invest £100,000 in qualifying investments.
e. Meena can defer the capital gains tax due on up to 100% of the gain, and disposals of qualifying EIS shares are normally exempt from capital gains tax if held for three years.
f. Meena does need not to be resident in the UK, but must be liable to UK income tax.
chapter reference 10K1
47
Manuel is self-employed and he is keen to minimise the income tax that he pays. He should be aware that:
You must select ALL the correct options to gain the mark:
a. the date on which he retires makes no difference to the tax liability of the business in the final year.
b. tax planning is normally carried out on an ongoing basis.
c. the choice of accounting date can make a difference to the timing of tax payments on his business profits.
d. typically, there is no advantage of undertaking tax planning at the end of the tax year.
b. tax planning is normally carried out on an ongoing basis.
c. the choice of accounting date can make a difference to the timing of tax payments on his business profits.
chapter reference 11B4
48
A client is considering making lifetime gifts of both business and non-business assets. What factors should they take into account?
You must select ALL the correct options to gain the mark:
a. The availability of business relief on gifted assets.
b. The availability of holdover relief for gifts of business interests.
c. The tax status of the recipients.
d. The tax status of the client.
e. Any gifts the recipients plan to make themselves.
a. The availability of business relief on gifted assets.
b. The availability of holdover relief for gifts of business interests.
d. The tax status of the client.
chapter reference 11E2C
49
Marina has two grandchildren, Charles aged 10 and Ellie aged 19. She wishes to minimise the potential inheritance tax payable on two large gifts to them. What would be suitable types of trusts for her to use for lifetime inheritance tax planning?
You must select ALL the correct options to gain the mark:
a. Interest in possession trust for Ellie.
b. Bare trust for Ellie and a discretionary trust for Charles.
c. Bare trust for Charles and a discretionary trust for Ellie.
d. Individual bare trusts for both Charles and Ellie.
e. Discretionary trust for both Charles and Ellie.
a. Interest in possession trust for Ellie.
c. Bare trust for Charles and a discretionary trust for Ellie.
e. Discretionary trust for both Charles and Ellie.
chapter reference 11E2G
50
Charlotte is considering making a transfer into a discretionary trust for the benefit of her nieces. What are the inheritance tax implications of such a transfer?
You must select ALL the correct options to gain the mark:
a. Any inheritance tax payable will be the responsibility of her nieces.
b. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
c. Any transfers into the trust will affect the availability of the nil rate band for any future chargeable lifetime transfers she may wish to make.
d. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte's death.
e. A transfer into the trust in excess of Charlotte's available nil rate band will be subject to the lifetime rate of 30%.
b. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
c. Any transfers into the trust will affect the availability of the nil rate band for any future chargeable lifetime transfers she may wish to make.
d. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte's death.
chapter reference 11E2G
51
Michael makes a contribution of £9,000 towards his new company car. What amount is deducted from the list price before calculating the benefit?
Select one:
a. £4,000.
b. £5,000.
c. £9,000.
d. £7,500.
b. £5,000.
chapter reference 1G2B
**Contribution toward capital cost**
If the employee makes a contribution of up to £5,000 towards the capital cost of a car when it is first made available, the contribution is deducted from the list price of the car before calculating the benefit. Any excess over £5,000 is ignored.
52
The married couple's allowance provides tax relief as a:
Select one:
a. lump sum payment.
b. extension of the individual's threshold before they pay higher-rate tax.
c. deduction from the individual's gross income.
d. deduction from the individual's tax liability.
d. deduction from the individual's tax liability.
chapter reference 1H4
53
Peter is a basic-rate taxpayer and Robert is a higher-rate taxpayer. They received total dividends of £10,000 each in the 2021/22 tax year. What are their individual tax liabilities on the dividends?
Select one:
a. Peter has a tax liability of £1,600 whilst Robert has a £3,200 tax liability.
b. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.
c. Peter has a tax liability of £800 whilst Robert has a £2,600 tax liability.
d. Peter has a tax liability of £975 whilst Robert has a £4,225 tax liability.
b. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.
chapter reference 1I1
54
Tomaz is taxed by his employer on £3,000 as a benefit in kind in relation to a van which he also uses outside work. What National Insurance contributions would be payable on this?
Select one:
a. His employer will pay £270 of class 1A contributions.
b. Tim will pay £270 of class 1 contributions.
c. Tim will pay £414 of class 1 contributions.
d. His employer will pay £414 of class 1A contributions.
d. His employer will pay £414 of class 1A contributions.
chapter reference 2B4
Class 1A NICs are calculated on the value of benefits as determined for income tax purposes. For example, if the taxable benefit of a company car is £6,000 then class 1A NICs of £828 (£6,000 at 13.8%) will be due.
55
The valuations of an asset for capital gains tax purposes and for inheritance tax purposes are:
Select one:
a. never the same.
b. always the same.
c. not always the same.
d. very rarely the same.
c. not always the same.
chapter reference 3B3
A valuation for CGT is not always the same as a valuation for IHT. For CGT, it is the asset that is valued, whereas for IHT the relevant value is the loss the estate. For example, the value of private property shares may be very low for CGT purposes if they are a small proportion of the equity, but giving them away could result in a substantial reduction in the seller's estate if the gift results in loss of control of the company. This gives the shares a much higher value for IHT purposes on the death of an individual, the same value must be used for CGT purposes, i.e. for the beneficiary's acquisition cost.
56
Sharon sold an asset and made a substantial profit. However, the profit was NOT subject to capital gains tax because she sold:
Select one:
a. government bonds.
b. company shares listed on the FTSE.
c. a painting.
d. an investment property.
a. government bonds.
chapter reference 3C4
Government and most corporate bonds, and government-guaranteed securities, owned by individuals are exempt from capital gains tax.
57
Finlay has made a chargeable gain of £35,000 on the sale of some shares after utilising his capital gains tax annual exempt amount. If he has allowable losses from a previous tax year, these:
Select one:
a. must be offset first against gains made in the same tax year, but only to the extent that it brings the gain down to the annual exempt amount.
b. can be carried forward, but if it is not used to offset gains made in the same tax year, it can only be used in one other tax year, selected by HMRC.
c. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.
d. can be carried forward, but only if it is claimed. The loss must then be used within a 6 year period.
c. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.
chapter reference 3D4
**Losses**
Losses on disposals can be set against any gains in the same tax year.
- A loss must be set against gains of the same tax year even if this reduces the total gains to below the annual exempt amount.
58
Gerry wants to give some money to his daughter on her wedding day and wishes to utilise the various exemptions available to him so as to avoid any inheritance tax consequences. Assuming he has made no gifts at all to date, Gerry can give her:
Select one:
a. £5,000.
b. £8,500.
c. £11,000.
d. £11,250.
c. £11,000.
chapter reference 4B1B/4B1E
59
Eva has made the following lifetime transfers: £210,000 into a discretionary trust in 2017, £500,000 into a bare trust in 2020, and £150,000 into a discretionary trust in 2021. The transfer[s] which resulted in an immediate lifetime IHT liability was[were]:
Select one:
a. only the transfer made in 2021.
b. the transfers made in 2017 and 2021.
c. the transfers made in 2020 and 2021.
d. all of the transfers.
a. only the transfer made in 2021.
chapter reference 4B3
60
Seb is 9 and was born in Singapore to UK domiciled parents who have just established domicile in Australia. Seb is now:
Select one:
a. UK domiciled.
b. Singapore domiciled.
c. Australian domiciled.
d. able to choose his domicile.
c. Australian domiciled.
chapter reference 5B1
61
Carol was resident in the UK all of her life until June 2019 when she emigrated to Spain. She still has two properties in the UK, from which she receives rental income, and significant shareholdings from which she receives dividends. With any gains on the sale of these UK assets, she may avoid capital gains tax:
Select one:
a. on the shares if she does not return to the UK before June 2024.
b. on the properties if she sells them before she returns to the UK.
c. altogether if she never returns to the UK.
d. on the properties and the shares if she remains non-resident for at least 4 years.
a. on the shares if she does not return to the UK before June 2024.
chapter reference 5C2C
62
Mark is neither resident nor domiciled in the UK. He owns an office building in the UK, which he rents out. As far as UK tax is concerned, he may be liable for:
Select one:
a. income tax only on the rent from the office.
b. income tax on the rent from the office, capital gains tax on the sale of the property, and inheritance tax on the property on death.
c. income tax on the rent from the office, inheritance tax on death, but no capital gains tax on the sale of the property
d. inheritance tax only on death.
b. income tax on the rent from the office, capital gains tax on the sale of the property, and inheritance tax on the property on death.
chapter reference 5D4
63
Steve was two weeks late filing his tax return. What penalty, if any, will HMRC charge him?
Select one:
a. £100, plus £5 penalty for each full week overdue.
b. 5% of his final liability.
c. £100, plus 5% for each full week overdue.
d. £100.
d. £100.
chapter reference 6A4
There is a fixed penalty of £100 for any return not submitted by 31 January.
64
Len, who is not a first-time buyer, purchases a house for £550,000. Assuming this is Len's only property, how much stamp duty land tax must he pay?
Select one:
a. £16,500.
b. £17,500.
c. £22,000.
d. £11,000.
b. £17,500.
chapter reference 7A1
65
Quick-In Limited import goods from outside the EU on a regular basis. When must they pay the tax due on these goods?
Select one:
a. At the time of importing them, unless special arrangements exist.
b. At the end of every month.
c. At the end of each quarter.
d. Once the goods have been sold.
a. At the time of importing them, unless special arrangements exist.
chapter reference 8A5
66
Mike and Molly are married and have £60,000 that they wish to invest in a National Savings and Investments product. They could NOT invest the whole amount in:
Select one:
a. direct ISAs.
b. a direct saver account.
c. an investment account.
d. income bonds.
a. direct ISAs.
chapter reference 9A2
67
Tom, Dick and Harry have the same number of shares in XYZ plc, and have each just received a dividend of £3,000. Tom is a non-taxpayer, Dick is a basic-rate taxpayer and Harry is a higher-rate taxpayer. If none of them have received any other dividends:
Select one:
a. all three of them will definitely have some sort of tax liability on their dividends.
b. Harry will pay more than four times as much tax on his dividend compared to Dick.
c. Tom and Dick will pay the same amount of tax on the dividend.
d. all three of them will not have to pay any tax on their dividends.
b. Harry will pay more than four times as much tax on his dividend compared to Dick.
chapter reference 9B1A
68
Sue has a current personal pension fund value of £380,000. She has no form of transitional protection. In the event of her death before the age of 75, the maximum additional lump sum death benefit that can be paid from her other uncrystallised money purchase pensions without incurring a tax charge is:
Select one:
a. £675,000.
b. £693,100.
c. £598,100.
d. £1,055,000.
b. £693,100.
Correct, chapter reference 10B6
The maximum lump sum death benefit that won't give rise to a tax charge is the amount of lifetime allowance, i.e. £1,073,100 in 2021/22.
69
Frankie is 17 and pays £1,500 into a cash ISA whilst her sister Anne is 21 and pays £1,500 into a stocks and shares ISA. What is the maximum additional amount that they can personally pay into cash ISAs in total in 2021/22?
Select one:
a. £37,000.
b. £41,368.
c. £46,000.
d. £26,000.
c. £46,000.
chapter reference 10C1C
70
Why has Paul received a chargeable event certificate?
Select one:
a. He has an unpaid capital gains tax liability.
b. He has become a non-resident of the UK in this tax year.
c. He has made a chargeable gain on a life policy.
d. He has transferred some of his unit trust holding to his wife.
c. He has made a chargeable gain on a life policy.
Correct, chapter reference 10G2I
Whenever a chargeable event occurs and a gain arises, the life office has to issue a certificate to the policyholder:
- The certificate must contain specified information, including the amount of chargeable gain, to allow the policyholder to complete their self assessment tax return.
- A copy must be issued to HMRC if:
\* the chargeable event was an assignment for money or money's worth; or
\* the amount of the gain, including any connected gain (e.g. via cluster policies) exceeded half of the basic rate limit (i.e. more than £18,850 in 2021/22).
- HMRC has the power to audit insurance company systems to check that they are producing the required certificates. These are regulations that specifiy the records that insurance companies must keep to allow HMRC to carry out those audits.
71
Sanjay is in good health and about to retire. He is looking for an annuity into which he can invest part of his tax free cash sum in order to generate additional income. Which type of annuity is he most likely to use to achieve this?
Select one:
a. Purchased life annuity.
b. Scheme pension.
c. Lifetime annuity.
d. Enhanced annuity.
a. Purchased life annuity.
chapter reference 10G4
72
What is the tax treatment of the income received from a purchased life annuity?
Select one:
a. The capital element will not be taxable, but the interest element is taxed as savings income.
b. The capital element will be taxable as pension income and the interest element will be taxable as savings income.
c. Both the capital and interest elements will be paid without any liability to tax providing the total payment is less than £12,570 per annum.
d. Both the capital and interest element will be taxed as savings income.
a. The capital element will not be taxable, but the interest element is taxed as savings income.
Correct, chapter reference 10G4A
73
XYZ have assets of £13m and qualify for the enterprise investment scheme [EIS]. What is the maximum amount they could raise under the EIS?
Select one:
a. £2m.
b. £10m.
c. £5m.
d. £3m.
d. £3m.
chapter reference 10K2
The company must have gross assets of not more than £15m before an investment, and no more than £16m after.
74
If Martin wishes to transfer some shares to his spouse to reduce the tax liability on a dividend payment, the transfer must be:
Select one:
a. absolute only.
b. for a minimum of 12 months.
c. unconditional only.
d. absolute and unconditional.
d. absolute and unconditional.
Correct, chapter reference 11B1
It must be pointed out that transfers of assets must be absolute and unconditional, meainig that the transferor spouse or partner must not have a future benefit from the transferred income or income-producing asset.
75
Ashwin is 10 years old and a non-taxpayer who has been given money by his mother. How much interest can this money earn tax-free per tax year?
Select one:
a. £12,500.
b. £9,000.
c. £100.
d. £3,600.
c. £100.
Correct, chapter reference 11B2
76
Alex is a company director who has a salary of £45,000. What action would he take if he wants to minimise the income tax that he pays?
Select one:
a. Increase his pension contributions that are made by his employer.
b. Take dividends from his company instead of a salary.
c. Increase his salary to above the upper earnings limit.
d. Transfer the ownership of his private car to the company so that it is taxed as a benefit in kind.
b. Take dividends from his company instead of a salary.
Correct, chapter reference 11C2
77
How long after a death do beneficiaries of a will have to enter into a deed of variation?
Select one:
a. Two years.
b. Eighteen months.
c. Six months.
d. Three years.
a. Two years.
Correct, chapter reference 11E1
A properly drafted will is always recommended. However, even if a will has not been drawn up in the most IHT-efficient way, the beneficiaries might be able to enter into a deed of variation within 2 years of the relevant death. This will not always be possible and several conditions must be met.
78
George, a millionaire, is UK domiciled but he is married to Olga who is non-UK domiciled. They have made wills leaving all of their estate to each other. All of these statements are correct, APART from:
Select one:
a. if Olga elects to be UK domiciled for IHT purposes there will be no tax on George's death assuming he dies first.
b. if George dies first, there will only be a £325,000 spouse exemption since Olga is non-UK domiciled.
c. if George dies first, there will only be a £55,000 spouse exemption since Olga is non-UK domiciled.
d. Olga's personal representatives can elect within two years of her death for her to be treated as UK domiciled.
c. if George dies first, there will only be a £55,000 spouse exemption since Olga is non-UK domiciled.
Correct, chapter reference 11E2A
79
If Rebecca makes her first ever lifetime transfer and incurs an immediate inheritance tax liability, she will have made a transfer into a:
Select one:
a. discretionary trust of £325,000.
b. bare trust of £370,000.
c. bare trust of £325,000.
d. discretionary trust of £370,000.
d. discretionary trust of £370,000.
Correct, chapter reference 11E2D
80
Mr Humphries is 47 and has a salary of £33,520. He has a company car giving him a benefit of £3,000. He pays interest of £1,500 on loan to pay inheritance tax and £2,500 into a retirement annuity plan that doesn't operate tax relief at source. What is his income tax liability for 2021/22?
Select one:
a. £3,390.
b. £4,490.
c. £4,290.
d. £3,990.
d. £3,990.
chapter reference 12A5A
81
Emily is 35 and single. She has a salary of £37,570 and a company car, the value of which for tax purposes is £3,500 in 2021/22. How much of her income will be taxed at the basic rate?
Select one:
a. £34,500.
b. £25,000.
c. £29,150.
d. £28,500.
d. £28,500.
chapter reference 12A5A
82
Lucy is 77 and has never married. In 2021/22 she has pension income of £10,500 and receives interest of £6,000 from her savings account. What is the highest rate of tax that she is liable for on her current level of savings income?
Select one:
a. 40%.
b. 20%.
c. 10%.
d. 0%.
d. 0%.
Correct, chapter reference 12A5A
83
Phil is 45 and employed. What is his National Insurance contribution liability if he earns £1,050 per week?
Select one:
a. £95.62 per week.
b. £93.96 per week.
c. £103.92 per week.
d. £92.30 per week.
a. £95.62 per week.
Correct, chapter reference 12A5B
84
Imran sold two share holdings in the current tax year. The first realised £100,000 having been purchased for £35,000. The second realised £40,000 having been inherited at a value of £60,000. The disposal costs for each were £500. Assuming he had no further losses and made no other capital gains during the tax year, what would be his taxable gain?
Select one:
a. £31,700.
b. £31,200.
c. £32,700.
d. £33,000.
a. £31,700.
chapter reference 12A5C
85
Peter is a widower who has made no lifetime transfers and he has lived in a care home since the passing of his wife. He died in 2021/22 with an estate of £600,000. He left a picture worth £40,000 to the National Gallery and split the rest of his estate equally amongst his four nephews. Peter's deceased wife's IHT nil rate band was fully used at the time of her death. What is the IHT due on Peter's estate?
Select one:
a. £94,000.
b. £110,000.
c. £84,600.
d. £99,000.
c. £84,600.
Correct, chapter reference 12A5D
86
Jake, 22, invested £4,000 into a flexible cash ISA in May 2021. He withdrew £2,000 in July 2021. What is the maximum amount that he can invest into the account in the remainder of the 2021/22 tax year?
Select one:
a. £16,000.
b. £14,000.
c. £18,000.
d. £17,000.
c. £18,000.
Correct, chapter reference 12B3B
87
Gregory, a higher-rate taxpayer, is contemplating a £40,000 investment into a venture capital trust [VCT]. If he did so:
Select one:
a. he will receive 20% tax relief on his investment and can 'defer' gains from another investment into the VCT.
b. he will receive 30% tax relief on his investment and can 'defer' gains from another investment into the VCT.
c. his dividends will not be liable to any tax and any gains on his investment would be exempt from capital gains tax.
d. his investment will be very liquid and he will be taxed at 32.5% on any dividends he receives.
c. his dividends will not be liable to any tax and any gains on his investment would be exempt from capital gains tax.
Correct, chapter reference 12B4C
88
In order to avoid paying any personal tax on encashment of a qualifying policy with a premium paying term of 12 years, for what minimum period of years must the policy be held?
Select one:
a. 10.
b. 7.5.
c. 9.
d. 12.
c. 9.
Correct, chapter reference 12B5D
There is no personal tax on the maturity or encashment of a qualifying policy that an investor has held for at least 10 years or three-quarters of the premium paying term, if that is less. Nevertheless, because of the tax treatment of the underlying fund, it does not achieve the tax efficiency of an ISA for a basic-, higher- or additional-rate taxpayer.
89
Klaus is non-UK domiciled but has been a UK resident for tax purposes for 13 out of the past 14 years. He currently receives significant income in Germany on an unremitted basis but he is reconsidering this. If he changed to a remittance basis, he would:
Select one:
a. receive it free of charge and could keep his personal allowance.
b. receive it free of charge but would lose his personal allowance.
c. have to pay £60,000 each tax year he wishes to use it and would lose his personal allowance for that year.
d. have to pay £30,000 each tax year he wishes to use it but would keep his personal allowance.
c. have to pay £60,000 each tax year he wishes to use it and would lose his personal allowance for that year.
Correct, chapter reference 12B6B
90
Clive owns some company shares, which he bought with an expectation of dividends and capital growth. Assuming he achieves this goal, how will his investment be taxed?
You must select ALL the correct options to gain the mark:
a. Capital gains tax may apply to any profit on the sale of the shares.
b. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
c. If Clive is a basic-rate taxpayer he has no further tax liability in respect of the dividend income.
d. Losses on the sale of shares can be offset against other capital gains tax liabilities.
e. Clive receives a tax credit in addition to his dividend.
a. Capital gains tax may apply to any profit on the sale of the shares.
b. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
d. Losses on the sale of shares can be offset against other capital gains tax liabilities.
Correct, chapter reference 9B1
91
If Sanjeev wants to invest into an ISA for the first time, what eligibility criteria must he meet?
You must select ALL the correct options to gain the mark:
a. He must be domiciled in the UK.
b. An individual aged 16 can invest in a stocks and shares ISA.
c. The cash invested in an ISA must belong to him.
d. A joint ISA can be arranged, but only between spouses or civil partners.
e. He must be resident in the UK.
f. A non-resident Crown employee working overseas can open an ISA.
c. The cash invested in an ISA must belong to him.
e. He must be resident in the UK.
f. A non-resident Crown employee working overseas can open an ISA.
Correct, chapter reference 10C1A
92
Mario, a higher-rate taxpayer, invested £20,000 in 2011 in a non-reporting offshore fund. The current value is £45,000 and he is considering realising his investment. What are the most appropriate issues that Mario should consider before encashment?
You must select ALL the correct options to gain the mark:
a. Mario will have a £25,000 gain with a £5,000 income tax liability.
b. Mario will have a £25,000 gain with a £10,000 income tax liability.
c. If Mario assigned the non-reporting fund to his wife [a basic-rate taxpayer], the income tax liability would be £5,000.
d. Mario will be able to deduct the capital gains tax annual exempt amount.
e. Splitting the encashment over two tax years will reduce his overall tax liability.
b. Mario will have a £25,000 gain with a £10,000 income tax liability.
c. If Mario assigned the non-reporting fund to his wife [a basic-rate taxpayer], the income tax liability would be £5,000.
chapter reference 10E2
93
The life fund of Giorgio's existing with-profits bond is taxed:
You must select ALL the correct options to gain the mark:
a. on dividend income from UK shares at 10%.
b. at 20% on any gains arising from the sale of assets from the fund.
c. at 40% on offshore based assets, such as shares.
d. but this tax cannot be reclaimed by Giorgio as a policyholder.
e. at 20% on property rental income.
b. at 20% on any gains arising from the sale of assets from the fund.
d. but this tax cannot be reclaimed by Giorgio as a policyholder.
e. at 20% on property rental income.
Correct, chapter reference 10G2A
The taxation of the life fund is complex. In summary:
- Essentially, the fund pays tax at 20% on interest income, property rental income and offshore income gains. UK dividends are generally exempt from tax.
- If the fund sells any assets at a profit, it pays tax on any gain at 20% (with no relief given for inflationary increases arising from January 2018 onwards as a result of indexation allowance being frozen at December 2017).
- These taxes are paid directly by the life office, so not involve the policy holder and cannot be reclaimed by any policy holder
94
Jeremy's investment portfolio has grown significantly and he has now set up a limited partnership special purpose vehicle. This would suggest that:
You must select ALL the correct options to gain the mark:
a. his objective is capital growth.
b. he aims to create additional income.
c. he is an experienced investor.
d. he is interested in the commercial property market.
e. he wishes to invest for at least 10 years.
a. his objective is capital growth.
c. he is an experienced investor.
d. he is interested in the commercial property market.
Correct, chapter reference 10J1
95
In order to be exempt from corporation tax, a real estate investment trust must ensure that:
You must select ALL the correct options to gain the mark:
a. a minimum of 25% of rental income must be retained within the fund.
b. a minimum of 75% of its gross profits must derive from rents.
c. a minimum of 80% of rental income must be distributed to investors.
d. at least 50% of the assets must be used to purchase commercial property.
e. rental profits must exceed loan interest charges by at least 25%.
f. a minimum of 90% of rental income must be paid as a dividend to investors.
b. a minimum of 75% of its gross profits must derive from rents.
e. rental profits must exceed loan interest charges by at least 25%.
f. a minimum of 90% of rental income must be paid as a dividend to investors.
chapter reference 10J3
**Real estate investment trusts (REITs)** are investment companies that are tax-transparent investment vehicles that enable investors to put their money into the commercial and residential property markets simply by buying shares in them.
REITs have to be UK tax resident and structered as closed-ended companies listed on a recognised stock exchange (including AIM). To be exempt from corporation tax, several conditions must be satisfied, including that at least 75% of the company's total gross profits have to originate from property letting, and interest on borrowing has to be at least 125% covered by rental profits.
At least 90% of the rental profits from each accounting period must be paid as a dividend to investors within twelve months on the end of the accounting period if REIT status is to be maintained.
96
John wants to invest £200,000 in a venture capital trust [VCT]. His income tax liability for 2021/22 is £50,000. What rules are applicable to John to qualify for the tax relief on his investment?
You must select ALL the correct options to gain the mark:
a. Income tax relief is withdrawn if the shares are disposed of within five years, except if the disposal is to a spouse or civil partner.
b. John cannot defer capital gains by reinvesting in VCT shares.
c. Income tax relief is withdrawn on the death of an investor.
d. John is eligible for £60,000 income tax relief on his investment into the VCT.
e. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
a. Income tax relief is withdrawn if the shares are disposed of within five years, except if the disposal is to a spouse or civil partner.
b. John cannot defer capital gains by reinvesting in VCT shares.
e. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
chapter reference 10L1
97
What strategies might an individual, who is not a company director, consider in order to minimise their National Insurance contributions?
You must select ALL the correct options to gain the mark:
a. Increase the amount the employer pays into a pension scheme by salary sacrifice.
b. Being paid more by way of salary and less in the form of a lump sum bonus.
c. Taking dividends instead of salary from a company in which they work and hold shares.
d. Taking salary instead of dividends from a company in which they work and hold shares.
e. Being paid less by way of salary and more in the form of a lump sum bonus.
a. Increase the amount the employer pays into a pension scheme by salary sacrifice.
c. Taking dividends instead of salary from a company in which they work and hold shares.
chapter reference 11C2
98
Henna earns £60,000 and is increasing her pension contributions, which can have the effect of reducing:
You must select ALL the correct options to gain the mark:
a. the amount of income that falls into the higher-rate tax bracket.
b. her income tax personal allowance.
c. the rate of income tax payable on her dividend income.
d. the rate of capital gains tax payable on a gain realised in the same tax year.
e. her pension annual allowance.
a. the amount of income that falls into the higher-rate tax bracket.
c. the rate of income tax payable on her dividend income.
d. the rate of capital gains tax payable on a gain realised in the same tax year.
chapter reference 11D1
99
When might it be advisable for James, who is married, to make full use of his nil rate band upon his death, rather than transfer it to his wife?
You must select ALL the correct options to gain the mark:
a. Neither he nor his wife have been previously married and so cannot inherit a previous spouse's unused nil rate band.
b. This is always a more effective strategy if he wishes to minimise an inheritance tax liability.
c. He expects any assets transferred to grow faster than the nil rate band.
d. He is concerned that his wife may need to go into care at some point.
e. His wife's first husband died having used none of his nil rate band.
c. He expects any assets transferred to grow faster than the nil rate band.
d. He is concerned that his wife may need to go into care at some point.
e. His wife's first husband died having used none of his nil rate band.
Correct, chapter reference 11E2A
100
Mark is considering making a potentially exempt transfer [PET] of property to a family member. What are the potential advantages of making such a transfer?
You must select ALL the correct options to gain the mark:
a. A PET will normally be a lifetime gift, but with the donor retaining control of the asset.
b. There is never a capital gains tax consequence on this type of transfer.
c. PETs are never subject to inheritance tax.
d. There is no lifetime charge on transfers over the nil rate band.
e. If Mark survives for seven years there will be no inheritance tax liability for the PET.
d. There is no lifetime charge on transfers over the nil rate band.
e. If Mark survives for seven years there will be no inheritance tax liability for the PET.
chapter reference 11E2C
101
Fay is aged 60 and receives a pension of £13,000 per annum with £4,000 building society interest. What amount of tax, if any, is Fay due to pay on the interest payment?
Select one:
a. £0.
b. £830.
c. £30.
d. £800.
a. £0.
Correct, chapter reference 1B1A
102
Lee is required to relocate to Scotland for his work. If the £12,500 cost of relocation is paid for by his employer, the amount that is taxable is:
Select one:
a. nil.
b. £12,500.
c. £8,000.
d. £4,500.
d. £4,500.
chapter reference 1G6G
Special rules apply when the employer reimburses relocation and removal expenses, either when an employee is required to move to take up a new job or is moved by an employer in an existing job. Such expenses are tax free up to £8,000. Any excess is taxable.
103
Agnes, a higher-rate taxpayer, is the life tenant of an interest in possession trust which has received dividend income totalling £1,000. Assuming Agnes has already fully utilised her dividend allowance, how will this income be taxed when paid out to her?
Select one:
a. She will receive it net of 32.5% tax and she will not have any further liability on this income.
b. She will receive it net of a £75 tax credit and will have to pay a further £250 in tax.
c. She will receive it net of 45% tax and she can potentially reclaim some tax.
d. She will receive the £1,000 gross as it is covered by the trust's dividend income nil rate band.
b. She will receive it net of a £75 tax credit and will have to pay a further £250 in tax.
Correct, chapter reference 1K5A/1K5B
104
Bryan is employed and has weekly earnings of £865. How much are his weekly class 1 National Insurance contributions in the tax year 2021/22?
Select one:
a. £81.72.
b. £103.80.
c. £89.40.
d. £83.40.
a. £81.72.
Correct, chapter reference 2B3A
105
Paul, a higher-rate taxpayer, has agreed to sell the business he has owned for 20 years, making a gain of £100,000 on 1 November 2021. He signed the contract on 1 December 2021 and has agreed to receive the money in July 2022. Assuming he has no other gains or unused losses to carry forward, how much capital gains tax will be due, and when?
Select one:
a. £8,770 on 31 July 2022.
b. £17,540 on 31 January 2023.
c. £8,770 on 31 January 2023.
d. £17,540 on 31 July 2023.
c. £8,770 on 31 January 2023.
Correct, chapter reference 3A1/3E/3H
106
Which disposal for CGT purposes is most likely to be regarded by HMRC to be at arm's length?
Select one:
a. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week's stay in Jamil's villa.
b. Marion, who gave an antique table worth £12,000 to her daughter.
c. Anna, who sold her mother's antique engagement ring to her niece for scrap value.
d. Fred, who sold £50,000 worth of shares to his son for £38,000.
a. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week's stay in Jamil's villa.
Correct, chapter reference 3B1
107
Jonah has sold two of a set of six antique chairs. He sold them for £40,000, but the overall loss to his estate was £60,000. For capital gains tax purposes:
Select one:
a. it is not possible to calculate the gain from the information provided.
b. it is the £60,000 value that is used to calculate any gain.
c. it is the £40,000 value that is used to calculate any gain.
d. it is the difference between the two values that is used to calculate any gain.
c. it is the £40,000 value that is used to calculate any gain.
Correct, chapter reference 3B3
108
Jack died on 20 May 2020 leaving his whole estate to his friend, Amanda. The estate was worth £400,000, on which tax of £30,000 was paid. Amanda died on 14 November 2021 with an estate worth £600,000, including the inheritance. How much IHT would be payable by Amanda's sole beneficiary, her sister?
Select one:
a. £110,000.
b. £87,800.
c. £82,500.
d. £85,025.
b. £87,800.
chapter reference 4B4D
(Tax paid on first transfer x net transfer / gross transfer) x relevant percentage
109
Sandra, who has previously used up all of her nil rate band, wishes to make a chargeable lifetime transfer. She plans to pay the lifetime inheritance tax herself and the net gift is to be £30,000. The loss to her estate for inheritance tax purposes will be:
Select one:
a. £37,500.
b. £42,000.
c. £36,000.
d. £50,000.
a. £37,500.
chapter reference 4F4
110
Stan was previously UK resident but has worked for an overseas company for the last couple of years. He still spends a varying number of days in the UK each year. Under what circumstances would he be expected to show he has at least three ties to the UK in order for him to be considered a UK resident for tax purposes?
Select one:
a. If he were to spend between 91 and 120 days in the UK during a tax year.
b. If he were to spend between 121 and 182 days in the UK during a tax year.
c. If he spent less than 45 days in the UK during a tax year.
d. If he were to spend between 46 and 90 days in the UK during a tax year.
d. If he were to spend between 46 and 90 days in the UK during a tax year.
Correct, chapter reference 5A5
111
Sanjay has been resident in the UK for the past 8 years but is non-UK domiciled. He is intending to remit funds to the UK to invest in an AIM listed company. For Sanjay to benefit from an exemption from the remittance rules the funds needs to be invested in the AIM listed company within:
Select one:
a. 183 days.
b. 45 days.
c. 30 days.
d. 90 days.
b. 45 days.
Correct, chapter reference 5D1
112
Georgina has been resident in the UK for 10 years, but is domiciled in Greece and has property and assets all over the world. On her death, inheritance tax may be due to the UK tax authorities:
Select one:
a. on none of her assets.
b. on her worldwide assets if she has ever been UK domiciled during her adult life.
c. on any assets she holds jointly with UK domiciled individuals.
d. only on property and assets situated in the UK.
d. only on property and assets situated in the UK.
chapter reference 5D3C
For non-UK-domiciled individuals, IHT is chargeable only on transfers of property situated in the UK.
113
Sydney pays tax through the self-assessment system. During the tax year he claimed a reduction in his payments on account. Why might he have done this?
Select one:
a. His income is higher than he expected.
b. His expenses went down.
c. He rented an unused office to a financial adviser.
d. He had a higher proportion of tax deducted under PAYE.
d. He had a higher proportion of tax deducted under PAYE.
Correct, chapter reference 6A2C
114
Andy recently purchased £750 worth of shares in a UK limited company through his stockbroker. How much stamp duty reserve tax, if any, will be payable?
Select one:
a. Nil.
b. £3.75.
c. £4.
d. £5.
b. £3.75.
Correct, chapter reference 7B
115
Folly plc made a profit of £1m during their current accounting period, which runs from 1 April 2021 to 31 March 2022. Folly plc's corporation tax liability for the 2021 financial year will be:
Select one:
a. £200,000.
b. £210,000.
c. £170,000.
d. £190,000.
d. £190,000.
Correct, chapter reference 8B1A
116
John, a higher-rate taxpayer, receives a total of £1,150 in interest payments from his building society account in 2021/22. He has no other savings. What income tax liability will he have on this interest payment?
Select one:
a. £260.
b. £130.
c. £460.
d. £230.
a. £260.
Correct, chapter reference 9A1
117
Diarmud has received a dividend payment from shares he owns of an overseas company. The dividend is most likely to have been received:
Select one:
a. after the deduction of withholding tax.
b. free of any UK tax.
c. with an accompanying 1/9 tax credit.
d. before the deduction of withholding tax.
a. after the deduction of withholding tax.
Correct, chapter reference 9B1C
Most overseas dividends are paid after the deduction of witholding tax
118
Penal tax is charged to a pension fund if it invests in certain types of assets, which include:
Select one:
a. shares in companies on the Alternative Investment Market.
b. commercial and residential property.
c. foreign currency and overseas government bonds.
d. residential property and tangible moveable assets.
d. residential property and tangible moveable assets.
Correct, chapter reference 10B8
119
Jim, a higher-rate taxpayer, has recently encashed his offshore fund which has reporting fund status making a gain of £10,000. Denys, a basic-rate taxpayer, has made the same gain on his offshore fund which does not have reporting status. Neither has made any other capital gains in this tax year. Who would pay more tax and by how much?
Select one:
a. Jim, by £1,000.
b. Denys, by £4,000.
c. Denys, by £2,000.
d. Jim, by £2,000.
c. Denys, by £2,000.
Correct, chapter reference 10E1/10E2
120
£20,000 was invested in a UK single premium investment bond on 1 November 2020 and by 31 October 2021 it had fallen in value to £18,000. If a part surrender of £3,500 was taken on 31 October 2021, what, if anything, would be the chargeable gain?
Select one:
a. £1,500.
b. £2,500.
c. Nil.
d. £3,500.
b. £2,500.
Correct, chapter reference 10G2F
121
Janice put a life policy into trust 5 years ago, with UK based trustees and beneficiaries. The policy incurred a chargeable event in the 2021/22 tax year and Janice subsequently died later in the tax year. How will the chargeable gain be taxed?
Select one:
a. The trustees can choose who they want the tax liability to fall on.
b. Any gain would be treated as part of Janice's income and any tax paid by the trustees can be recovered
c. The beneficiaries would be liable for any tax due, but can recover it from the trustees.
d. The trustees would be liable for any tax due.
b. Any gain would be treated as part of Janice's income and any tax paid by the trustees can be recovered
Correct, chapter reference 10I1
122
Mary is an additional-rate taxpayer with a large capital gains tax liability this tax year. If she makes an investment into an enterprise investment scheme, what is the maximum cumulative income tax and capital gains tax benefit she could enjoy and when is the earliest time this percentage would apply to her?
Select one:
a. 58% after three years of investment.
b. 50% after three years of investment.
c. 50% after two years of investment.
d. 38% after two years of investment.
a. 58% after three years of investment.
Correct, chapter reference 10K5
123
Sergio, a higher-rate taxpayer, has invested £30,000 into a venture capital trust [VCT] in this tax year. If he received dividends on his VCT investment this year totalling £300, he will:
Select one:
a. have no income tax to pay on his VCT dividends and the value of the VCT is exempt from inheritance tax.
b. be subject to higher-rate tax on the dividend but any gains are exempt from capital gains tax and the value of the VCT is exempt from inheritance tax.
c. have no income tax to pay on his VCT dividends and any gains on disposal are exempt from capital gains tax.
d. only be subject to basic-rate tax on the VCT dividends and he will be exempt from any gains if the VCT is held for 5 years.
c. have no income tax to pay on his VCT dividends and any gains on disposal are exempt from capital gains tax.
Correct, chapter reference 10L1
124
Gracie is 74 years old, and suffers an effective income tax marginal rate of 60% on some of her earnings. This means that she must:
Select one:
a. have earnings in excess of £100,000.
b. have triggered the married couple's allowance trap.
c. be married or in a civil partnership.
d. have fully utilised both her savings and dividend allowances.
a. have earnings in excess of £100,000.
Correct, chapter reference 11A2
125
Under the disclosure of tax avoidance schemes requirements:
Select one:
a. the registration of a scheme shows it is HMRC approved.
b. basic tax planning is covered by these rules.
c. UK-based arrangements are exempt from its requirements.
d. the scheme's reference number must be shown in the taxpayer's tax return.
d. the scheme's reference number must be shown in the taxpayer's tax return.
Correct, chapter reference 11A4A
126
Sue owns a 60% shareholding in Acorn Furniture Ltd. All of these courses of action may work to reduce Sue's liability to tax or National Insurance, EXCEPT:
Select one:
a. delaying the exercise of share options.
b. taking bonus instead of salary.
c. taking bonuses before or after the end of a tax year.
d. taking dividends instead of salary.
b. taking bonus instead of salary.
Correct, chapter reference 11B3/11C2
127
Bill, who is a higher-rate taxpayer, receives earned income and dividend income in 2021/22. He makes a personal pension contribution in 2021/22 that results in his dividend income being removed from the higher-rate tax bracket. The effective rate of tax relief on his personal pension contribution will be:
Select one:
a. 32.5%.
b. 40%.
c. 25%.
d. 45%.
d. 45%.
Correct, chapter reference 11D1
The saving consists of the 25% difference between the higher (32.5%) and the basic (7.5%) tax rates on divdend income, and the 20% basic rate relief deducted from the pension payment.
128
Richard is UK domiciled and is married to Tammy who is non-UK domiciled. Assuming no election is made by Tammy and Richard died leaving his full nil rate-band, how much inheritance tax would be payable if his entire estate consisted of a £800,000 share portfolio which he left to Tammy in his will?
Select one:
a. Nil.
b. £190,000.
c. £150,000.
d. £60,000.
d. £60,000.
Correct, chapter reference 11E2A
129
Felicity, who has not made any other lifetime gifts, made a potentially exempt transfer of £100,000 to her daughter in September 2021. The most appropriate life assurance policy for her to cover any potential inheritance tax liability on her estate would be a seven year:
Select one:
a. decreasing term assurance policy with an initial sum assured of £100,000.
b. decreasing term assurance policy with an initial sum assured of £40,000.
c. level term assurance policy with a sum assured of £37,600.
d. level term assurance policy with a sum assured of £100,000.
c. level term assurance policy with a sum assured of £37,600.
Correct, chapter reference 11E2C
130
Ria has trading profits of £165,000 and also receives £6,000 salary as a non-executive director of a separate company. She pays £8,500 net into her personal pension. What is Ria's income tax liability for 2021/22, rounded to the nearest pound?
Select one:
a. £58,735.
b. £59,785.
c. £59,254.
d. £61,910.
c. £59,254.
Correct, chapter reference 12A1
131
Carl is 56 and has earnings of £45,000. He has a pension plan valued at £300,000. He wants to take tax-free cash and an additional income of £10,000 from the pension fund. What is his income tax liability for 2021/22?
Select one:
a. £8,486.
b. £11,000.
c. £6,486.
d. £9,432.
d. £9,432.
Correct, chapter reference 12A5A
132
Sarah is 73 and a widow. In 2021/22 she has pension income of £18,000 and receives interest of £2,000 from her bank account. How much tax, if any, will she be liable for on the interest payment?
Select one:
a. £400.
b. £300.
c. None.
d. £200.
d. £200.
Correct, chapter reference 12A5A
133
John is a 30 year old employee who is paid £1,495 per week. What is his employer's National Insurance contribution liability?
Select one:
a. £159 per week.
b. £206.31 per week.
c. £104.60 per week.
d. £182.85 per week.
d. £182.85 per week.
Correct, chapter reference 12A5B
134
Steve, 44 and a monthly paid employee, earned £5,000 during August 2021. His employee's class 1 National Insurance contributions for the month of August 2021 are:
Select one:
a. £600.
b. £504.36.
c. £456.48.
d. £423.26.
d. £423.26.
Correct, chapter reference 12A5B
135
Dave is a widower who has made no lifetime transfers. He died in 2021/22 with an estate of £800,000. He left £50,000 to charity and split the rest of his estate amongst his two sons. This included a residential property owned by Dave and his deceased wife, valued at £250,000. Dave's deceased wife's inheritance tax [IHT] nil rate band was fully used at the time of her death in 2015. What is the IHT due on Dave's estate?
Select one:
a. £63,000.
b. £153,000.
c. £70,000.
d. £170,000.
a. £63,000.
Correct, chapter reference 12A5D
136
Yvonne is aged 33 and will invest £3,000 into a Lifetime ISA in the 2021/22 tax year. What Government bonus will Yvonne receive this year and until what age will she be eligible for the bonus on future contributions?
Select one:
a. £1,000 and Yvonne will be eligible for the bonus until age 45.
b. £750 and Yvonne will be eligible for the bonus until age 40.
c. £750 and Yvonne will be eligible for the bonus until age 50.
d. £600 and Yvonne will be eligible for the bonus until age 55.
c. £750 and Yvonne will be eligible for the bonus until age 50.
Correct, chapter reference 12B3B
137
Adam, who is 18 and Lee, who is 17 would both like to invest in a cash ISA. How much more than Lee, if anything, can Adam invest in 2021/22?
Select one:
a. £29,000.
b. £9,000.
c. Nil.
d. £20,000.
c. Nil.
Correct, chapter reference 12B3B
138
Three and a half years ago, Janice, a higher-rate taxpayer, invested £30,000 in a non-qualifying UK life assurance bond. What maximum withdrawal, if any, could Janice make without incurring any tax charge in the current tax year?
Select one:
a. Nil.
b. £4,500.
c. £6,000.
d. £1,500.
c. £6,000.
Correct, chapter reference 12B5C
139
Erica is emigrating to New Zealand permanently. It is wise to postpone the disposal of shares that are likely to produce gains until, at the earliest, the tax year:
Select one:
a. in which the departure takes place.
b. five years on from the one in which departure takes place.
c. before the one in which departure takes place.
d. after the date of departure.
d. after the date of departure.
chapter reference 12B6A
140
Gary, Glen and David all have £40,000 each in gilts paying 3% gross interest per year. Gary has £8,000 pension income, Glen has £15,000 pension income and David has £55,000 pension income. They have no other income. When looking at their tax position:
You must select ALL the correct options to gain the mark:
a. David will have a tax liability of £280 on the interest.
b. Gary and Glen will pay no tax on their interest.
c. both Glen and David will benefit from the £5,000 savings band.
d. Gary should complete an R85 form.
a. David will have a tax liability of £280 on the interest.
b. Gary and Glen will pay no tax on their interest.
Correct, chapter reference 9A3A
141
Mo works as a director of his family owned business and he is looking to make pension contributions. He:
You must select ALL the correct options to gain the mark:
a. can normally take a maximum of 25% of the fund as a tax-free lump sum.
b. can contribute 100% of his earned income, being under age 75, and receive tax relief.
c. could accumulate a sizeable pension fund but any fund in excess of the lifetime limit will be subject to a tax charge.
d. can carry forward unused pension contributions from the previous 5 years to maximise his pension contributions.
e. could make contributions in excess of the annual allowance but these will be subject to tax at the fixed rate of 40%.
a. can normally take a maximum of 25% of the fund as a tax-free lump sum.
b. can contribute 100% of his earned income, being under age 75, and receive tax relief.
c. could accumulate a sizeable pension fund but any fund in excess of the lifetime limit will be subject to a tax charge.
Correct, chapter reference 10B1-4
142
Sami has a flexible cash ISA and has contributed £8,000 into this. If she withdraws £2,000 to pay for repairs to her car, what option does she have to make further ISA contributions in the current tax year?
You must select ALL the correct options to gain the mark:
a. She could contribute up to £14,000 further in a stocks and shares ISA.
b. She could invest up to £12,000 further into another provider's cash ISA.
c. She is not able to make additional contributions into the ISA in the current tax year.
d. She could invest up to £12,000 into her existing LISA and, in addition, pay an extra £4,000 per year into a LISA.
e. She could contribute up tor £14,000 further into her existing ISA.
a. She could contribute up to £14,000 further in a stocks and shares ISA.
e. She could contribute up tor £14,000 further into her existing ISA.
Correct, chapter reference 10C1C
143
Mavis has an offshore investment that has reporting status. If she is a basic-rate taxpayer and expects to remain so after encashing the offshore investment, how will this be taxed?
You must select ALL the correct options to gain the mark:
a. Any gains on encashment will be subject to capital gains tax at 10%.
b. Any gains on encashment will be taxed at 32.5%.
c. Gains on encashment will be subject to income tax at 20%.
d. Dividends will be taxed at 7.5%.
e. The capital gains tax annual exempt amount could be used to offset any gain.
f. She would not be able to offset any income against the dividend allowance.
a. Any gains on encashment will be subject to capital gains tax at 10%.
d. Dividends will be taxed at 7.5%.
e. The capital gains tax annual exempt amount could be used to offset any gain.
Correct, chapter reference 10E1
144
Brenda has been advised that she should consider investing in protected and guaranteed equity products, but she is concerned about the risk they represent. If she were to opt for a growth product:
You must select ALL the correct options to gain the mark:
a. she will receive interest annually, but it is calculated daily.
b. performance is linked to the performance of all equities globally over the product term.
c. she is guaranteed to receive a return in excess of that she could earn on deposit.
d. she is guaranteed a certain minimum return, typically her original capital.
e. her returns will be linked to the performance of a specific index.
d. she is guaranteed a certain minimum return, typically her original capital.
e. her returns will be linked to the performance of a specific index.
Correct, chapter reference 10F
145
In what ways are structured products potentially useful to help mitigate inheritance tax [IHT] for someone with limited life expectancy?
You must select ALL the correct options to gain the mark:
a. Transfers to structured products are exempt from IHT if the donor is expected to have less than 12 months to live.
b. The probate value of the investment could be less than the amount invested.
c. Beneficiaries will receive the full value of the structured product on maturity regardless of probate value.
d. Structured products can easily be encashed to pay an IHT bill.
e. Growth on a structured product is always outside the investor's estate.
b. The probate value of the investment could be less than the amount invested.
c. Beneficiaries will receive the full value of the structured product on maturity regardless of probate value.
Correct, chapter reference 10F2
146
Irene took out a qualifying onshore endowment policy with a term of 10 years, which she made paid-up in year 7. This means she will become liable to tax on the proceeds:
You must select ALL the correct options to gain the mark:
a. on death before surrender.
b. at maturity.
c. upon settlement of a critical illness claim.
d. upon assigning a mortgage.
a. on death before surrender.
b. at maturity.
Correct, chapter reference 10G2C
147
Frank, a company director, receives his sole income of £50,000 in the form of dividends from his business. From a taxation point of view, he:
You must select ALL the correct options to gain the mark:
a. could pay his wife, who doesn't work in the business, dividends of up to £7,500 without any concern that HMRC will challenge this.
b. would pay basic and higher-rate tax after taking account of the dividend allowance.
c. will be able to use the dividend allowance to reduce the income tax he pays on these dividends.
d. would not be liable to National Insurance contributions
e. would pay 7.5% income tax on all of his dividend income.
c. will be able to use the dividend allowance to reduce the income tax he pays on these dividends.
d. would not be liable to National Insurance contributions
Correct, chapter reference 11B1B
148
Ralph is currently self-employed but is thinking about setting up a limited company instead. If he was to do so, the tax advantages of this would allow him to:
You must select ALL the correct options to gain the mark:
a. choose an accounting date that can minimise the tax payments on his business profits.
b. potentially benefit from overlap relief.
c. determine the date of retirement or ceasing to work which may make a difference to the tax liability in the final year.
d. always pay a lower level of income tax.
e. receive the dividend tax allowance which can makes it attractive to run a business as a limited company.
a. choose an accounting date that can minimise the tax payments on his business profits.
b. potentially benefit from overlap relief.
c. determine the date of retirement or ceasing to work which may make a difference to the tax liability in the final year.
Correct, chapter reference 11B4
149
Melissa's husband left his full estate to her having made no lifetime gifts. She died in August 2021 leaving an estate of £1.2m, which included their home valued at £410,000. What is the position if her will leaves £100,000 to the RSPCA charity and the balance to her son?
You must select ALL the correct options to gain the mark:
a. there will be no inheritance tax liability.
b. her executors will have a £40,000 inheritance tax liability.
c. her son will receive £1,064,000 after gifts and inheritance tax liability.
d. the reduced rate of inheritance tax for charitable giving does not apply.
e. if the estate had consisted of her company shares then they would likely be an exempt asset.
c. her son will receive £1,064,000 after gifts and inheritance tax liability.
e. if the estate had consisted of her company shares then they would likely be an exempt asset.
Correct, chapter reference 11E
150
Problems may occur when taking advantage of business relief [BR] and agricultural relief [AR]. These would include the fact that:
You must select ALL the correct options to gain the mark:
a. if company shares are transferred from a husband to wife, and then to the next generation within two years, they would not qualify for BR on the subsequent transfer.
b. BR would be lost when qualifying assets held by a deceased spouse are inherited by their surviving spouse.
c. some tenanted farmland may only qualify for 50% AR.
d. BR increases the incentive to make lifetime gifts of family businesses.
e. BR would not be affected if a company chose to run down its business and instead invest surplus profits in the stock market.
a. if company shares are transferred from a husband to wife, and then to the next generation within two years, they would not qualify for BR on the subsequent transfer.
c. some tenanted farmland may only qualify for 50% AR.
Correct, chapter reference 11E2E
151
An employee has a loan of £20,000 from her employer which is used to purchase a house. The employee pays interest at 1.25%. What is the taxable benefit on the loan if the official rate for these types of loans in 2021/22 is 2%?
Select one:
a. £150.
b. £200.
c. £400.
d. £250.
a. £150.
chapter reference 1G3
152
Helen earns £55,000 per annum and receives UK building society interest of 2% on her £62,000 deposit. If this is her only savings income, how much tax will she pay on this interest per year?
Select one:
a. £296.
b. £496.
c. £148.
d. £96.
a. £296.
chapter reference 1I1
153
Mike wants to set up a trust for his grandson where the asset itself belongs to the beneficiary. What is the most suitable trust?
Select one:
a. Accumulation and maintenance trust.
b. Bare trust.
c. Constructive trust.
d. Discretionary trust.
b. Bare trust.
Correct, chapter reference 1K2A
154
Josh, 22, has been taken on as an apprentice at a local engineering firm, earning £300 a week. What is the position with National Insurance contributions?
Select one:
a. Josh will be liable to Class 1 primary NICs, but his employer will have no Class 1 secondary liability on his income.
b. Neither Josh or his employer will be liable to Class 1 NICs, whether primary or secondary.
c. Josh will be liable to Class 1 primary NICs, and his employer will be liable to Class 1 secondary NICs.
d. Josh will have no liability to Class 1 primary NICs, but his employer will have a liability to Class 1 secondary NICs on his income.
c. Josh will be liable to Class 1 primary NICs, and his employer will be liable to Class 1 secondary NICs.
chapter reference 2B2
155
Petula sold her car on 12 May 2021 making a gain of £6,000 and sold some shares on 15 June 2021 making a gain of £12,700. Assuming no other assets are disposed of, what is her taxable gain after the capital gains tax annual exempt amount?
Select one:
a. £400.
b. £700.
c. £18,700.
d. £6,700.
a. £400.
Correct, chapter reference 3C2/3C4
156
When calculating a capital gains tax liability, which is the first deduction made from the proceeds of the disposal of an asset?
Select one:
a. Acquisition costs.
b. The capital gains tax annual exempt amount.
c. Allowable capital losses.
d. Costs relating to improvements.
a. Acquisition costs.
Correct, chapter reference 3D
157
Having accumulated a substantial art collection over the years, Steve has recently given a large portion of this to his son. No money changed hands. When, if at all, will Steve be liable for capital gains tax on this?
Select one:
a. At the time Steve claims any loss relief on the sale of other assets.
b. When Steve's son eventually sells it.
c. He will not be liable for capital gains tax as the transfer is exempt.
d. At the time of the transfer.
d. At the time of the transfer.
Correct, chapter reference 3D1
158
Denise, who was unmarried, died in August 2021, two and a half years after making a potentially exempt transfer of £500,000. If there are no other previous transfers to take into account, what, if anything, would the inheritance tax liability on the potentially exempt transfer be?
Select one:
a. Nil.
b. £67,600.
c. £70,000.
d. £54,080.
b. £67,600.
chapter reference 4B2C/4B2D
159
Anna died in August 2021 leaving an estate of £1,400,000. She has made no previous transfers or gifts and the estate did not include any residential property. In her will she leaves £200,000 to charity and the remainder is split equally between her husband, George, and daughter, Lisa. How much inheritance tax will be payable on her estate?
Select one:
a. £480,000.
b. £350,000.
c. £110,000.
d. £99,000.
d. £99,000.
Correct, chapter reference 4B4B/4B4C
160
For income tax purposes, the tax year may NOT be split into two parts for:
Select one:
a. Claire, who left the UK in October 2021 to start a new full-time job in Cyprus.
b. Ruth, who is a UK resident, but who works some of the year in Switzerland.
c. Eileen, who has just retired to Spain, giving her UK home to her daughter.
d. Mario, who moved to the UK in June 2021 to live and work full-time.
b. Ruth, who is a UK resident, but who works some of the year in Switzerland.
Correct, chapter reference 5A4
161
Under UK residency tax laws, it is possible to have:
Select one:
a. dual domicile.
b. dual domicile and dual residence.
c. dual residence and dual nationality.
d. dual nationality and dual domicile.
c. dual residence and dual nationality.
chapter reference 5B
162
If Rafa is non-UK resident and owns shares in a UK based company, he:
Select one:
a. may not pay UK income tax on the dividends received depending on whether a double taxation agreement is in place.
b. will not typically pay UK income tax on the dividends received.
c. will typically pay UK income tax on the dividends received.
d. will pay the difference between any withholding tax and the UK basic rate tax liability on any dividends received.
b. will not typically pay UK income tax on the dividends received.
chapter reference 5F5
163
By what latest date must companies submit P11D returns to HMRC?
Select one:
a. 6 July.
b. 6 April.
c. 19 May.
d. 31 May.
a. 6 July.
chapter reference 6B3D
164
Andy has recently purchased £30,000 worth of shares in a UK domiciled exchange traded fund. How much, if anything, will he have paid in stamp duty?
Select one:
a. £1,500.
b. £15,000.
c. £1,000.
d. Nil.
d. Nil.
Correct, chapter reference 7B
165
ABC Limited has trading profits of £1.2m. If its accounting period ends on 5 April 2022, what is the latest date that ABC can pay its corporation tax?
Select one:
a. 5 July 2022.
b. 31 December 2022.
c. 6 January 2023.
d. 5 April 2023.
c. 6 January 2023.
chapter reference 8B4A
166
Sonal has read an article about UK equity investment trusts and thinks they may suit her. From a taxation perspective, she would:
Select one:
a. not need to pay capital gains tax personally as it is accounted for within the trust.
b. have to set up a trust to hold the investment on her behalf.
c. be able to use any of her remaining dividend allowance against any income received.
d. be able to use any of her remaining personal savings allowance against any income received.
c. be able to use any of her remaining dividend allowance against any income received.
Correct, chapter reference 9B2
167
Tom lets out a number of properties on a self-employed basis. Which purchase would he NOT be able to claim as a capital allowance against his taxable profit?
Select one:
a. A new toilet in an old school house rented to Scouts.
b. Tables and chairs in a restaurant.
c. Desks and office equipment in an office above a shop.
d. Several new sewing machines in a textile factory.
a. A new toilet in an old school house rented to Scouts.
Correct, chapter reference 9C3A
168
Bert is about to retire and take benefits from his employer's defined contribution pension scheme. His options for drawing income are:
Select one:
a. flexible drawdown or a secured pension in the form of an lifetime annuity.
b. flexible drawdown or capped drawdown.
c. flexi-access drawdown, uncrystallised pension lump sum, or capped drawdown.
d. a secured pension in the form of a lifetime annuity, an uncrystallised pension lump sum or flexi-access drawdown.
d. a secured pension in the form of a lifetime annuity, an uncrystallised pension lump sum or flexi-access drawdown.
Correct, chapter reference 10B7
169
Two sisters have the same amounts in offshore funds. Alice is a higher-rate taxpayer and has a non-reporting fund. Grace is a basic-rate taxpayer and has a reporting fund. What is the tax position?
Select one:
a. Grace will pay less capital gains tax than Alice on disposal of their holdings.
b. Alice will pay at least four times the rate of tax than Grace does if they are encashed at the same time.
c. Grace will pay less income tax than Alice before they sell their holdings.
d. Alice will not pay any more tax than Grace on sale of the funds.
b. Alice will pay at least four times the rate of tax than Grace does if they are encashed at the same time.
Correct, chapter reference 10E
170
Which client, with a non-qualifying life policy, would NOT suffer a chargeable event?
Select one:
a. Ben, taking a withdrawal of £12,000 from his policy he started 18 months ago with a £100,000 investment.
b. Eric, surrendering his policy for a cash amount of £15,000.
c. Jenny, assigning her policy to her builder to pay for a kitchen extension.
d. Katie, assigning her policy to her civil partner.
d. Katie, assigning her policy to her civil partner.
Correct, chapter reference 10G2C/10G2F
171
David purchased a pension annuity with £50,000 from his personal pension and his twin Paul purchased a purchased life annuity with £50,000 taken from his building society account. If the same annuity rate applied to both annuities and they are both basic-rate taxpayers:
Select one:
a. Paul will receive a higher net income than David.
b. Paul's annuity will all be treated as non-savings income.
c. David's annuity will be paid gross.
d. David will receive part of his income tax-free.
a. Paul will receive a higher net income than David.
Correct, chapter reference 10G4
172
In September 2021 Greta gifted £100,000 into an absolute trust for the benefit of her grandson, Frank, aged 12. The £100,000 was invested into a non-qualifying UK life assurance policy. In the event of the policy being surrendered, any income tax liability on a gain will be the liability of:
Select one:
a. Frank's parents equally.
b. Frank.
c. Greta.
d. The trustees.
b. Frank.
Correct, chapter reference 10I1
173
Sarah is an additional-rate taxpayer with a large capital gains tax liability this tax year following the sale of a share portfolio. If she makes an investment into a seed enterprise investment scheme, what is the maximum cumulative income tax and capital gains tax benefit she could enjoy?
Select one:
a. 58%.
b. 60%.
c. 50%.
d. 64%.
b. 60%.
chapter reference 10K6
174
Tax avoidance schemes registered with HMRC are:
Select one:
a. not necessarily suitable for risk adverse clients because registration does not denote HMRC approval, and so cannot be deemed free from risk.
b. suitable only for clients with an income of more than £150,000.
c. suitable for risk adverse clients because they are protected from any Government legislation introduced with retroactive effects.
d. suitable for some risk adverse clients because the only potential drawback is that they may not be effective, resulting in a tax liability.
a. not necessarily suitable for risk adverse clients because registration does not denote HMRC approval, and so cannot be deemed free from risk.
Correct, chapter reference 11A4
175
In June 2021, Ted, a higher-rate taxpayer transfers £70,000 of shares to his civil partner Patrick, a non-taxpayer, who sells them making a gain of £30,000. Patrick has not made any other gains. What tax liability is due on the transfer and the gain?
Select one:
a. The transfer is free from capital gains tax and there is a £1,770 capital gains tax liability on the gain.
b. The transfer is free from capital gains tax and there is a £3,540 capital gains tax liability on the gain.
c. The transfer is liable to 20% in excess of the capital gains tax annual exempt amount and there is a £1,770 capital gains tax liability on the gain.
d. The transfer is liable to 20% in excess of the capital gains tax annual exempt amount and there is a £3,540 capital gains tax liability on the gain.
a. The transfer is free from capital gains tax and there is a £1,770 capital gains tax liability on the gain.
Correct, chapter reference 11B1A
176
Malcolm has put money into numerous investments in the name of his daughter, Kylie, who is aged 17. Each of these investments in Kylie's name would give rise to an income tax charge for Malcolm except for the £150 interest received on a[n]:
Select one:
a. Junior ISA.
b. cash ISA.
c. NS&I Direct saver account.
d. regular building society deposit account.
a. Junior ISA.
Correct, chapter reference 11B2
177
Lisa, who is a non-taxpayer, would like to contribute £100 per month gross into a personal pension plan. How much tax relief, if any, will she receive on her contributions?
Select one:
a. 10%.
b. 5%.
c. 20%.
d. Nil.
c. 20%.
Correct, chapter reference 11D1
178
Fred died on 10 December 2007 when the nil rate band was £300,000. In his will he left £150,000 to his daughter and the balance to Gaby, his wife. Gaby died on 12 December 2021 having never owned any residential property, so her estate will be entitled to a nil rate band of:
Select one:
a. £325,000.
b. £475,000.
c. £650,000.
d. £487,500.
d. £487,500.
Correct, chapter reference 11E2A
179
In 2020/21, Paul used his full annual inheritance tax exemption. In 2021/22 he gave £150 to each of his four grandchildren on their birthdays, £15,000 to his daughter on her wedding, and £10,000 to his favourite charity. The total amount that will be treated as a potentially exempt transfer for inheritance tax purposes in 2021/22 is:
Select one:
a. £10,000.
b. £7,000.
c. £7,600.
d. £12,600.
b. £7,000.
chapter reference 11E2F/11F5
180
Lee Thomas is 76 and a widower. In 2021/22 he receives a company pension of £15,000 per annum, the Basic State pension of £135.60 per week and bank interest of £2,500 per annum from his bank account. Based on a 52 week year, what is his income tax liability for 2021/22, rounding to the nearest pound?
Select one:
a. £2,396.
b. £4,896.
c. £1,896.
d. £2,196.
d. £2,196.
chapter reference 12A5A
181
Mr Edwards is a pensioner who receives a pension income of £30,000 gross and £4,000 of gross savings income. Mr Edwards would:
Select one:
a. be able to claim the starting rate of 0% on savings.
b. qualify for the dividend allowance.
c. qualify for the full personal savings allowance.
d. be a higher-rate taxpayer.
c. qualify for the full personal savings allowance.
chapter reference 12A5A
182
Daisy has a total income of £17,570 from her drawdown pension fund and also receives savings income of £2,000. If she reduces her drawdown income by £1,000 in 2021/22, her net income will reduce by:
Select one:
a. £800.
b. £600.
c. £200.
d. £400.
b. £600.
chapter reference 12A5A
183
Hannah is employed as a director of the family firm. What is her National Insurance contribution liability if she earns £11,000 as a salary and draws £35,000 as dividends in 2021/22?
Select one:
a. £171.84.
b. £1,140.
c. £571.20.
d. £1,320.
a. £171.84.
chapter reference 12A5B
184
A small family run limited company has just two director employees, who both take salaries of £8,000 a year and £20,000 each in dividends. What is the total National Insurance bill for the company in 2021/22?
Select one:
a. £1,311.
b. £1,920.
c. £0.
d. £2,208.
c. £0.
chapter reference 12A5B
185
If a cash ISA provides a fixed rate of 1.8% per annum, what gross rate would an additional-rate taxpayer need to receive from a taxable investment to earn an equivalent amount each year?
Select one:
a. 3.27%.
b. 3%.
c. 2.79%.
d. 2.25%.
a. 3.27%.
chapter reference 12B3A
186
When investment income is received directly rather than through a UK life company, which category of taxpayer will be treated most favourably?
Select one:
a. Basic-rate taxpayers.
b. Additional-rate taxpayers.
c. Higher-rate taxpayers.
d. Non-taxpayers.
d. Non-taxpayers.
chapter reference 12B5A
187
On encashment of a non-qualifying UK life assurance policy, an additional-rate taxpayer will be subject to a further income tax charge of:
Select one:
a. 20%.
b. 40%.
c. 25%.
d. 50%.
c. 25%.
Correct, chapter reference 12B5B
188
Just over three years ago, Florence, a higher-rate taxpayer, invested £40,000 in a non-qualifying UK life assurance bond. The bond is now worth £38,000. What maximum withdrawal, if any, could she make without incurring any tax charge in the current tax year?
Select one:
a. £2,000.
b. Nil.
c. £4,000.
d. £8,000.
d. £8,000.
Correct, chapter reference 12B5C
189
An investor, who is currently UK resident, has held a non-UK life assurance bond for eight years and was non-resident for six of those years. What proportion of any gain, if any, would be free of UK income tax?
Select one:
a. 25%.
b. 50%.
c. None.
d. 75%.
d. 75%.
Correct, chapter reference 12B6A
190
If Anne is considering investing into a National Savings investment account for her 6 year old grandson:
You must select ALL the correct options to gain the mark:
a. she can invest up to £1,000,000.
b. any interest will be tax free.
c. she is unable to invest in it as she is not the parent.
d. funds can be withdrawn at any time.
a. she can invest up to £1,000,000.
d. funds can be withdrawn at any time.
Correct, chapter reference 9A2A
191
Mary, who is 45 and has no earned income, pays £100 per month net into her pension. She is married to Jeff, 46, who is a higher-rate taxpayer with a pension fund valued at £600,000. Regarding their respective pensions:
You must select ALL the correct options to gain the mark:
a. they will both need to be age 67 before taking pensions from their group personal pension plans.
b. Mary will be able to pay at least an additional £1,680 net this year into her pension.
c. on death before the age of 75, Jeff's pension fund would be paid as a tax-free lump sum death benefit up to the lifetime allowance.
d. Jeff is likely to pay 40% marginal income tax on any contribution in excess of the annual allowance.
e. Mary's pension provider uses the net pay arrangement when paying into her personal pension plan.
b. Mary will be able to pay at least an additional £1,680 net this year into her pension.
c. on death before the age of 75, Jeff's pension fund would be paid as a tax-free lump sum death benefit up to the lifetime allowance.
d. Jeff is likely to pay 40% marginal income tax on any contribution in excess of the annual allowance.
Correct, chapter reference 10B1/10B3/ 10B6
192
Polly, who has two children aged 16 and 17, wishes to fund the maximum possible into ISAs for both of them. Polly should be aware that:
You must select ALL the correct options to gain the mark:
a. she could arrange a joint junior ISA for both of her children.
b. she could arrange the ISA under trust if she wished.
c. to be eligible under the ISA rules, Polly must first gift the money to the children.
d. gross income of over £100 per year from a cash ISA will be taxed as her income.
e. the children would be eligible for both a cash ISA up to £20,000 and a junior ISA of up to £9,000.
c. to be eligible under the ISA rules, Polly must first gift the money to the children.
d. gross income of over £100 per year from a cash ISA will be taxed as her income.
e. the children would be eligible for both a cash ISA up to £20,000 and a junior ISA of up to £9,000.
Correct, chapter reference 10C1A
193
From a taxation point of view, why would Samir benefit from investing in a non-reporting fund?
You must select ALL the correct options to gain the mark:
a. Income can be accumulated in a low tax environment.
b. If he is non-UK domiciled, it is excluded property and so will not suffer any inheritance tax.
c. As a UK resident investor, he can roll up income and realise profits when he subsequently becomes non-resident.
d. If he is non-UK resident, income and gains are tax free both in the UK and in his country of residence.
e. As a UK resident, he will not have to pay income tax on the eventual profit.
a. Income can be accumulated in a low tax environment.
b. If he is non-UK domiciled, it is excluded property and so will not suffer any inheritance tax.
c. As a UK resident investor, he can roll up income and realise profits when he subsequently becomes non-resident.
Correct, chapter reference 10E3
194
Stephen, a higher-rate taxpayer, is considering whether to invest in an onshore or offshore bond. Concerning taxation of the funds:
You must select ALL the correct options to gain the mark:
a. over the longer term, he may achieve a higher net return with an offshore bond.
b. an onshore bond incurs tax within the fund of 10%.
c. for onshore bonds, gains are taxed at 20% for higher-rate taxpayers and 25% for additional-rate taxpayers.
d. for an offshore bond, tax is charged on the gross return.
a. over the longer term, he may achieve a higher net return with an offshore bond.
c. for onshore bonds, gains are taxed at 20% for higher-rate taxpayers and 25% for additional-rate taxpayers.
d. for an offshore bond, tax is charged on the gross return.
Correct, chapter reference 10H2
195
Natalie own shares in a property company listed on the London Stock Exchange. In what ways does this investment differ from a direct property holding?
You must select ALL the correct options to gain the mark:
a. The value of the property shares tends to move less rapidly than the property market generally.
b. The value of the investment can be affected adversely by stock market factors.
c. The investment is spread over a number of different properties.
d. The investment is less liquid than direct property holdings.
e. Share prices are affected by the quality of management and the level of borrowing.
b. The value of the investment can be affected adversely by stock market factors.
c. The investment is spread over a number of different properties.
e. Share prices are affected by the quality of management and the level of borrowing.
Correct, chapter reference 10J2
196
Dominic wishes to diversify his investment portfolio and is thinking of investing in real estate investment trusts. He should be aware that:
You must select ALL the correct options to gain the mark:
a. they can be held within an ISA.
b. they are exempt from corporation tax in all circumstances.
c. they are particularly suitable for a growth portfolio.
d. the tax-exempt element is classed as property income.
e. the non-exempt element is taxable as UK dividend income.
a. they can be held within an ISA.
d. the tax-exempt element is classed as property income.
e. the non-exempt element is taxable as UK dividend income.
Correct, chapter reference 10J3
197
Suresh and Jina run a business as husband and wife. In planning their tax affairs:
You must select ALL the correct options to gain the mark:
a. a salary of between £120 and £184 per week would allow each of them to qualify for State benefits as long as National Insurance contributions are paid.
b. if the business is set up as a limited company, no income tax will be payable on up to £2,000 of dividend income each.
c. unlike salaries, dividends are not subject to National Insurance contributions.
d. HMRC will take no account as to the reasonableness of the salary taken out of the business.
e. profits could be shared by operating the business as a partnership.
b. if the business is set up as a limited company, no income tax will be payable on up to £2,000 of dividend income each.
c. unlike salaries, dividends are not subject to National Insurance contributions.
e. profits could be shared by operating the business as a partnership.
Correct, chapter reference 11B1B
198
Jack has adjusted net income of £59,000 per annum, whilst Jill's is £52,000. They have two children under age 18 and Jill has always claimed the child benefit for the children. With the child benefit they currently receive:
You must select ALL the correct options to gain the mark:
a. they can elect to forgo receiving the child benefit if they wish to avoid paying any high income child benefit charge.
b. they can reduce their adjusted net income by making pension or charity contributions.
c. if Jill pays £1,600 gross into a pension plan, she will retain all of the child benefit payable.
d. any high income child benefit charge will be deducted from Jill, as she receives the child benefit payment.
e. they would both need to reduce their adjusted net income to £50,000 or under in order to avoid any high income child benefit charge.
a. they can elect to forgo receiving the child benefit if they wish to avoid paying any high income child benefit charge.
b. they can reduce their adjusted net income by making pension or charity contributions.
e. they would both need to reduce their adjusted net income to £50,000 or under in order to avoid any high income child benefit charge.
Correct, chapter reference 11B2B
199
Bill is the director of his own limited company. Which actions would potentially enable Bill to reduce his income tax and/or National Insurance contribution liability for 2021/22?
You must select ALL the correct options to gain the mark:
a. Deferring a dividend payment beyond 5 April 2022.
b. Paying himself a larger dividend and a lower salary.
c. Paying himself a lower salary and pay the difference as a bonus.
d. Changing his company car to one with lower CO2 emissions.
a. Deferring a dividend payment beyond 5 April 2022.
b. Paying himself a larger dividend and a lower salary.
d. Changing his company car to one with lower CO2 emissions.
Correct, chapter reference 11B3
200
Glen is a higher-rate taxpayer with dividend income who is looking to contribute to a pension for his son Bill, aged 7. What are the most likely reasons for Glen to invest in a personal pension for Bill?
You must select ALL the correct options to gain the mark:
a. Glen will receive higher rate tax relief if he invests into Bill's pension.
b. Glen would be able to deduct the net contribution into Bill's pension from his income and receive higher rate tax relief.
c. Glen is able to invest up to £2,880 net into Bill's pension even though Bill has no income.
d. Bill's pension fund will grow essentially the same as an offshore bond.
e. Glen would receive up to 32.5% tax relief on his own personal pension contributions.
f. The contribution Glen makes into Bill's pension would not reduce the overall pension contribution Glen could make into his own pension.
c. Glen is able to invest up to £2,880 net into Bill's pension even though Bill has no income.
d. Bill's pension fund will grow essentially the same as an offshore bond.
f. The contribution Glen makes into Bill's pension would not reduce the overall pension contribution Glen could make into his own pension.
Correct, chapter reference 11D1
201
Simon has recently taken out a loan and has been advised by his accountant that the interest payments can be treated as an allowable deduction from his total income. This is because the loan was taken out to:
Select one:
a. pay an inheritance tax bill.
b. purchase some land for development.
c. purchase a buy-to-let property.
d. purchase a UK gilt.
a. pay an inheritance tax bill.
Correct, chapter reference 1D
202
George qualifies to receive the married couple's allowance at the full rate. What is the implication for him?
Select one:
a. He can add £9,125 to his personal allowance.
b. He can reduce his tax liability by £912.50.
c. He can expand his basic rate band by £9,125.
d. He can reduce his tax liability by £1,825.
b. He can reduce his tax liability by £912.50.
Correct, chapter reference 1H4
203
Mary and Steve have a daughter Leila, aged 10. Annually, Mary earns £20,000 and Steve earns £54,000. As a result, their child benefit will be reduced by:
Select one:
a. 40%.
b. 25%.
c. 35%.
d. 45%.
a. 40%.
Correct, chapter reference 1J4
204
Trevor has been informed that he will NOT have to pay any National Insurance on a recent payment from his employer. This is because it was:
Select one:
a. a redundancy payment.
b. made in the form of vouchers redeemable for cash.
c. holiday pay.
d. paternity pay.
a. a redundancy payment.
chapter reference 2B1
205
Correct
Mark 1 out of 1
Flag question
Question text
Peter agrees to sell his business on 1 November 2021 and signs the contract on 3 January 2022, but only receives the payment on 8 April 2022. The date of disposal for tax purposes is:
Select one:
a. 20 April 2022 when the sale is notified to HMRC.
b. 1 November 2021 when Peter agrees to sell his business.
c. 3 January 2022 when the contract for sale becomes binding.
d. 8 April 2022 when Peter receives the payment.
c. 3 January 2022 when the contract for sale becomes binding.
Correct, chapter reference 3A1
206
Inter-spousal transfers are effective to reduce capital gains tax liability for a couple, provided that the spouses:
Select one:
a. lived together for the whole of the tax year concerned.
b. lived together for at least part of the tax year concerned.
c. have the same surname.
d. are subject to income tax at the same rate.
b. lived together for at least part of the tax year concerned.
chapter reference 3A2
A disposal by one spousee to the other does not give rise to a chargeable gain, with one exception, (see following bullet points). But when the asset is ultimately disposed of, the eventual liability is calculated by reference to the first spouse's acquisition cost.
- A disposal between spouses is a 'no gain, no loss' disposal.
- In this way, the first spouse's gain is passed on the other spouse.
- The provision can be used where one spouse:
* Has used the annual exempt amount and the other has not;
* has losses that can be set against gains; or
* will pay CGT at a lower rate than the other
**- Inter-spouse transfers are only treated this way if the spouses are living together at some point during the tax year**
If there is a disposal between spouses after the tax year of seperation but before divorce, any gain would be taxable. Because they would still be married,the transfer would be treated as a non-commercial one between connected persons, and market value would be substitued for the proceeds.
Where spouses dispose of a jointl held asset, each spouse is taxabale on the gain on their own share of the asset. For example, if the husband owns 20% and the wife owns 80%, the husband is taxable on 20% of the gain. Property held jointly is always treated as owned in equal shares unless the ownership is as tenants in common in declared unequal shares.
207
Anna, a higher-rate taxpayer, registered a loss on her investments of £20,000 in 2008/09. In 2021/22, she realises a gain of £18,400 which is her only gain or loss for the tax year. What is her capital gains tax liability and what loss relief, if any, can she carry forward?
Select one:
a. £1,540 capital gains tax liability with a nil carry forward loss.
b. Nil capital gains tax liability with a £13,900 carry forward loss.
c. £1,540 capital gains tax liability with a £13,900 carry forward loss.
d. Nil capital gains tax liability with a £1,600 carry forward loss.
b. Nil capital gains tax liability with a £13,900 carry forward loss.
Correct, chapter reference 3D/3D4
208
Diana makes an interest-free loan to her son. It will NOT be treated as a transfer of value as:
Select one:
a. her son is resident is Spain.
b. the loan was used to buy a residential property.
c. the loan is repayable upon her son's death.
d. the loan is repayable upon Diana's death.
d. the loan is repayable upon Diana's death.
chapter reference 4A5A
IHT is charged on the value transferred by a 'chargeable transfer', which means any transfer of value made by an individual which is not exempt.
- An interest-fee loan is not a transfer of value if it is repayable on demand or on death.
- Any transfer that is allowable in computing a peron's profits for income tax is exempt. A contribution for an employee to an approved occupational pension scheme or personal pension is likewise exempt.
- Usually, when someone makes a gift, there is no difference between the increase in the value of the recipient's estate and the reduction in the value of the estate of the person who made the gift. In some cases, however, there can be a significant difference.
209
Simon wishes to make a gift in consideration of marriage to his fiancée, Louise. For the gift to be treated as exempt for inheritance tax purposes, its value must NOT exceed:
Select one:
a. £2,500.
b. £5,000.
c. £3,000.
d. £1,000.
a. £2,500.
chapter reference 4B1E
The wedding party gift exemption if the donor is a party to the marriage/civil partnership, and the gift is made to the other party to the marriage/civil partnership is £2,500.
The same applies to grandparents and remote ancestors.
If the donor is a parent the amount is £5,000.
Any other person the amount is £1,000.
210
Sam has come to the UK to study and expects to be here for at least three years before returning to Australia. He will be regarded as:
Select one:
a. resident and ordinarily resident in the UK.
b. ordinarily resident in the UK.
c. resident in the UK.
d. non-UK resident.
c. resident in the UK.
Correct, chapter reference 5A2
211
Toby has lived in the Netherlands for the last 4 years and earns £20,000 per annum for 20 days' consultancy work in the UK. He also receives an income of £1,000 per annum from his holdings in UK government securities. This income is NOT subject to UK tax because Toby is:
Select one:
a. not a UK national.
b. not resident in the UK.
c. not UK domiciled.
d. resident in the UK.
b. not resident in the UK.
Correct, chapter reference 5C2A
212
Frank is a UK resident and is employed on a part-time basis by a company based in France. The firm pays him in Euros and deducts income tax under the French tax system. What UK requirements, if any, will Frank need to meet?
Select one:
a. A UK tax return is always required when a UK resident has foreign income irrespective of the amount of income.
b. There is no requirement for him to file a UK tax return providing the income is less than £15,000 per annum.
c. A UK tax return is always required when a UK resident has foreign income if his income exceeds £15,000 per annum.
d. There is no requirement for him to file a UK tax return providing the income is less than £10,000 per annum.
d. There is no requirement for him to file a UK tax return providing the income is less than £10,000 per annum.
Correct, chapter reference 5E
There is no need to files a tax return where an individual has overseas employment income of less than £10,000 and overseas bank interest of less than £100 in a tax year if all of it is subject to foreign tax.
213
Leila is self-employed and pays her taxes under self-assessment. The taxes she is assessed on will include income tax:
Select one:
a. and classes 2 and 4 National Insurance contributions.
b. and class 4 National Insurance contributions.
c. only.
d. and classes 2, 3 and 4 National Insurance contributions.
a. and classes 2 and 4 National Insurance contributions.
Correct, chapter reference 6A1B
214
Kevin, who is not a first-time buyer, purchased his house for £605,000 but only paid stamp duty land tax on £598,000. This was because £7,000 of the purchase price was for:
Select one:
a. legal fees.
b. a structural survey.
c. repairs made by the vendor between exchange and completion.
d. carpets and curtains.
d. carpets and curtains.
Correct, chapter reference 7A1
215
ABC Holdings Ltd is incorporated in Iceland, but the company will be UK resident for tax purposes if:
Select one:
a. all of its directors are resident in the UK for tax purposes.
b. ABC Holdings is a parent company.
c. the directors elect for this to be the case.
d. central management and control of the company takes place in the UK.
d. central management and control of the company takes place in the UK.
Correct, chapter reference 8B8
216
Hideki, an additional-rate taxpayer, owns 1,000 shares in a major plc. He has already used his dividend allowance so, if the company declares a dividend of 18p per share, what amount will Hideki have to reserve for the tax due on the dividend?
Select one:
a. £68.58.
b. £58.50.
c. £81.
d. £72.
a. £68.58.
chapter reference 9B1A
217
Joanna, a basic-rate taxpayer, lets a room in her house for £150 per week and incurs expenses associated with this letting of £800 per annum. She will pay tax of:
Select one:
a. £60 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.
b. £660 if she opts for the rent-a-room method and £1,560 if she opts for the normal basis.
c. £660 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.
d. £60 if she opts for the rent-a-room method and £1,560 if she opts for the normal basis.
a. £60 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.
Correct, chapter reference 9C11
218
Roxanne has earnings of £105,000 and makes a pension contribution of £40,000 in 2021/22. She made contributions of £30,000 in 2020/21, £20,000 in 2019/20 and £10,000 in 2018/19. How much more could Roxanne contribute this year using carry forward assuming she is not subject to tapering and has not flexibly accessed any of her pensions?
Select one:
a. £60,000.
b. Nil.
c. £30,000.
d. £40,000.
a. £60,000.
chapter reference 10B1/10B2
Remember: The previous 3 tax years!!!
219
Wendy paid £30,000 into a non-qualifying single premium life assurance policy on 4 September 2016. She took a partial surrender of £1,500 on 5 May 2017 and one of £4,500 on 6 June 2018. The policy matured on 4 September 2021 with a value of £32,000. How much will the chargeable gain on maturity be?
Select one:
a. £5,000.
b. £2,000.
c. £6,500.
d. £8,000.
a. £5,000.
Correct, chapter reference 10G2F
220
Stephen, who has earnings of £55,000 for 2021/22, invested £80,000 into an offshore bond on 1 August 2013. He took seven regular annual withdrawals of £3,000 before fully encashing the bond for £78,000 on 1 September 2021. If he has no other savings income, the income tax liability from this investment would be:
Select one:
a. £7,600.
b. nil.
c. £7,400.
d. £3,800.
c. £7,400.
chapter reference 10H2
221
Ursula, an additional-rate taxpayer aged 50, is considering investing in an offshore bond. If she did so and then later encashes the bond whilst a basic-rate taxpayer, she benefits because:
Select one:
a. she will pay 20% tax liability on all or part of the chargeable gains as opposed to 45%.
b. she will have no further tax liability on all or part of the chargeable gains as opposed to 25%.
c. top slicing will reduce all of her gain so that it stays in the basic rate band.
d. her fund will be taxed at 20% rather than 45%.
a. she will pay 20% tax liability on all or part of the chargeable gains as opposed to 45%.
chapter reference 10H2
222
Josh, an additional-rate taxpayer, has an income tax liability for 2021/22 of £78,000. If he invests £200,000 into an enterprise investment scheme, his tax liability will reduce to:
Select one:
a. £58,000.
b. £38,000.
c. £62,400.
d. £18,000.
d. £18,000.
Correct, chapter reference 10K1
223
Wang, an additional-rate taxpayer, is contemplating a £100,000 investment into a venture capital trust [VCT]. From a tax point of view:
Select one:
a. any gains in this investment will be exempt from capital gains tax immediately.
b. he will get 50% tax relief on his investment and the VCT will be exempt from inheritance tax after 2 years.
c. he will get 30% tax relief on his investment and can 'defer' capital gains from another investment into the VCT.
d. he will be taxed on any dividends he receives unless he holds the shares for 5 years.
a. any gains in this investment will be exempt from capital gains tax immediately.
Correct, chapter reference 10L1
224
Blair, who is 55, has total earned income of £115,000 for 2021/22. How much more income tax will Blair pay in 2021/22 compared with someone of the same age with total earned income of £100,000?
Select one:
a. £9,000.
b. £7,500.
c. £3,000.
d. £6,000.
a. £9,000.
Correct, chapter reference 11A2
225
Fiona is 15 and is the beneficiary of a discretionary trust set up by her grandfather. If the trustees distribute income to Fiona, she:
Select one:
a. would be able to reclaim the 45% tax credit paid on the distribution as long as she was a non-taxpayer.
b. would be able to reclaim 38.1% of the tax credit if the distribution was from dividends.
c. would be able to reclaim 20% tax credit if the distribution was from interest.
d. would not be able to reclaim any tax credit.
a. would be able to reclaim the 45% tax credit paid on the distribution as long as she was a non-taxpayer.
chapter reference 11B2
226
Which State benefit is paid irrespective of an individual's National Insurance contribution record?
Select one:
a. Bereavement Benefits.
b. State Pension.
c. New style Jobseeker's Allowance.
d. Child Benefit.
d. Child Benefit.
chapter reference 11C1
227
Edmund is a higher-rate taxpayer and wishes to contribute £50,000 into his personal pension plan. His net contribution would be:
Select one:
a. £30,000.
b. £36,000.
c. £33,750.
d. £40,000.
d. £40,000.
chapter reference 11D1
228
Helen's husband, Paul, died in September 2003 with an estate valued at £147,900 when the inheritance tax [IHT] threshold was £255,000. He left his entire estate to his son. Helen's estate is currently valued at £564,700. Assuming she has made no lifetime transfers and the estate did not include a residential property, the IHT due on her estate if she should die in 2021/22 is:
Select one:
a. £41,280.
b. £95,880.
c. £20,480.
d. £53,040.
a. £41,280.
Correct, chapter reference 11E2A
229
Hannah has made the following gifts in 2021/22: £1,500 split equally between her six godchildren, £3,000 each to her grandson and granddaughter on their 18th birthdays and £1,000 to her friend's daughter on her marriage. Assuming she made no gifts in 2020/21, the total of non-exempt gifts is:
Select one:
a. nil.
b. £6,500.
c. £1,500.
d. £2,000.
a. nil.
Correct, chapter reference 11E2F
230
Mohammed, who is 45, earns a salary of £37,420 and has a company car with a taxable benefit of £2,800. He also receives interest of £1,000 from his building society. He has no other income. What is his income tax liability for 2021/22?
Select one:
a. £5,670.
b. £5,730.
c. £5,530.
d. £4,970.
c. £5,530.
Correct, chapter reference 12A5A
231
Susan, aged 79, has pension income of £16,420 and bank interest of £4,160. Her income tax liability for 2021/22 will be:
Select one:
a. £1,432.
b. £1,602.
c. £1,172.
d. £1,402.
c. £1,172.
Correct, chapter reference 12A5A
232
Bernard, who is self-employed, has profits of £62,500 for 2021/22. Assuming a 52 week tax year, what is Bernard's total National Insurance contribution liability for 2021/22?
Select one:
a. £5,625.
b. £4,922.48.
c. £3,907.78.
d. £4,066.38.
d. £4,066.38.
Correct, chapter reference 12A5B
233
Heidi, 30, earned £1,026 in the last week of July 2021. What is the total employer and employee class 1 National Insurance contributions due for that week?
Select one:
a. £95.14.
b. £118.13.
c. £213.27.
d. £264.71.
c. £213.27.
Correct, chapter reference 12A5B
234
Harriet bought a vase in 1997 for £300. In 2020 she discovers it is actually worth a great deal more and sells it via an auction on 20 July 2021 for £32,500 incurring costs of £1,000. What is Harriet's capital gains tax liability for 2021/22 assuming she has no other capital disposals and has a taxable income after deducting the personal allowance of £25,200?
Select one:
a. £2,590.
b. £2,530.
c. £2,350.
d. £2,020.
b. £2,530.
Correct, chapter reference 12A5C
235
Sarah died in December 2021 with an estate worth £875,000 which she left equally to her four grandchildren. Her late husband had fully utilised his nil rate band on his death, Sarah had made no previous lifetime transfers, and neither estate contained any residential property. How much will each grandchild receive after inheritance tax has been taken into consideration?
Select one:
a. £218,750.
b. £164,050.
c. £164,350.
d. £163,750.
d. £163,750.
chapter reference 12A5D
236
Roger, a higher-rate taxpayer, has £15,000 to invest for the medium term. His most tax efficient option would be to invest the money in a[n]:
Select one:
a. unit trust held jointly with his non-taxpayer wife.
b. current account with his bank, which pays 1.5% on credit balances.
c. ISA.
d. NS&I Investment account.
c. ISA.
Correct, chapter reference 12B1B
237
Gerard, an additional-rate taxpayer, sold his shares in ABC Ltd in July 2021 when he retired from his role as the Managing Director. He had held the position for the last 10 years and the shares amounted to 10% of the voting stock. After all allowances Gerard realised a capital gain of £1.2m. The capital gains tax owed can be reduced by:
Select one:
a. paying the proceeds into a pension.
b. making a negligible value claim.
c. investing the proceeds into shares listed on the Alternative Investment Market.
d. claiming business asset disposal relief.
d. claiming business asset disposal relief.
Correct, chapter reference 12B2D
238
An investor wishes to defer a capital gains tax liability and would also like to obtain income tax relief on the investment. This could be achieved by reinvesting a gain of up to:
Select one:
a. £200,000 into a venture capital trust and this investment will be eligible for tax relief of up to 20%.
b. £1m into an enterprise investment scheme and this investment will be eligible for tax relief of up to 20%.
c. £200,000 into a venture capital trust and this investment will be eligible for tax relief of up to 30%.
d. £1m into an enterprise investment scheme and this investment will be eligible for tax relief of up to 30%.
d. £1m into an enterprise investment scheme and this investment will be eligible for tax relief of up to 30%.
Correct, chapter reference 12B4A
239
Donna is a higher-rate taxpayer in 2021/22. In the same tax year she surrenders an offshore bond, making a gain of £52,000 and an onshore bond, making a gain of £24,000. What is the total income tax liability on these surrenders assuming they do not alter her marginal rate of income tax and the personal savings allowance has already been utilised?
Select one:
a. £30,400.
b. £25,600.
c. £15,200.
d. £33,200.
b. £25,600.
Correct, chapter reference 12B5B/12B5E
240
Daniel lets out a number of properties. When calculating the rental income assessable for tax, which expenses can be deducted?
You must select ALL the correct options to gain the mark:
a. The cost of bringing a newly purchased property into a fit state for letting.
b. Premiums for insuring the property.
c. Interest payments on any loans to buy furnishings.
d. The legal fees for the eviction of bad tenants.
e. The cost of any alterations.
f. Any professional charges for rent collection.
b. Premiums for insuring the property.
c. Interest payments on any loans to buy furnishings.
d. The legal fees for the eviction of bad tenants.
f. Any professional charges for rent collection.
Correct, chapter reference 9C2
241
Investors using tax wrappers should understand that:
You must select ALL the correct options to gain the mark:
a. income and gains within a tax wrapper roll up tax-free.
b. the income from some types of tax wrapper is taxable.
c. the proceeds from some tax wrappers may incur a liability to capital gains tax.
d. inputs into all types of tax wrapper qualify for some form of tax relief.
b. the income from some types of tax wrapper is taxable.
c. the proceeds from some tax wrappers may incur a liability to capital gains tax.
Correct, chapter reference 10A
242
Jeremy, aged 45, earns £70,000 per annum. He is keen to build up funds that can be used to provide an income in retirement and is considering a lump sum payment into either a personal pension or an ISA. In deciding between these, he should be aware that:
You must select ALL the correct options to gain the mark:
a. he will pay his pension contributions net of basic rate tax.
b. the ISA funds are more tax efficient.
c. he can access his pension funds when he reaches age 50.
d. he can contribute more to the pension.
e. the pension can only provide 25% of the fund as a tax-free lump sum.
a. he will pay his pension contributions net of basic rate tax.
d. he can contribute more to the pension.
e. the pension can only provide 25% of the fund as a tax-free lump sum.
Correct, chapter reference 10B/10C
243
Kevin holds a stocks and shares ISA and he wishes to widen the investments he currently holds within it. Kevin:
You must select ALL the correct options to gain the mark:
a. can only hold cash if it is for the purpose of future investment.
b. can invest in a life assurance policy.
c. can invest in shares listed on the Alternative Investment Market.
d. cannot invest in corporate bonds.
e. cannot hold an investment trust.
b. can invest in a life assurance policy.
c. can invest in shares listed on the Alternative Investment Market.
Correct, chapter reference 10C1B
244
In deciding between a reporting and a non-reporting fund an investor should bear in mind that:
You must select ALL the correct options to gain the mark:
a. the capital gains tax annual exempt amount cannot be used to reduce taxable gains made on non-reporting funds.
b. a reporting fund must distribute the income annually.
c. gains made on a non-reporting fund are taxed at the appropriate rate of income tax.
d. income under both is payable gross.
a. the capital gains tax annual exempt amount cannot be used to reduce taxable gains made on non-reporting funds.
c. gains made on a non-reporting fund are taxed at the appropriate rate of income tax.
d. income under both is payable gross.
Correct, chapter reference 10E
245
If Jaya is considering investing in a real estate investment trust [REIT], what are the tax benefits of her doing so?
You must select ALL the correct options to gain the mark:
a. A payment from the tax-exempt element is classed as property income and paid gross.
b. REIT shares can be held in an ISA and income and gains are tax-exempt.
c. Investments into a REIT qualify for 30% income tax relief.
d. A payment from the tax-exempt element is paid net of 20% tax.
e. Gains on REIT shares are always free of capital gains tax.
b. REIT shares can be held in an ISA and income and gains are tax-exempt.
d. A payment from the tax-exempt element is paid net of 20% tax.
Correct, chapter reference 10J3
246
Peter is an additional-rate taxpayer with an adventurous attitude to risk. He has recently made a gain of £50,000 on his investments and wants to avoid paying some or all of the capital gains tax now. Which investment options would be most tax efficient for him?
You must select ALL the correct options to gain the mark:
a. He could defer his gains by investing into a new residential property.
b. He could reinvest his gains into a seed enterprise investment scheme.
c. He could defer his gains by investing into an enterprise investment scheme.
d. He could invest in an enterprise investment scheme to reduce his income tax liability.
e. He could invest in gilts to reduce his capital gains tax liability.
b. He could reinvest his gains into a seed enterprise investment scheme.
c. He could defer his gains by investing into an enterprise investment scheme.
d. He could invest in an enterprise investment scheme to reduce his income tax liability.
Correct, chapter reference 10K
247
James is the managing director of a small graphic design business. He employs his wife Kelly and she is paid a small weekly salary. He should be aware that:
You must select ALL the correct options to gain the mark:
a. PAYE records normally need to be kept even if Kelly's salary was less that £120 per week.
b. any salary below £184 per week will not qualify for State benefits.
c. National Insurance contributions will be payable on any salary above £120 per week.
d. if Kelly was a shareholder, she could utilise the £2,000 dividend allowance.
e. the remuneration must be reasonable for the work undertaken.
a. PAYE records normally need to be kept even if Kelly's salary was less that £120 per week.
d. if Kelly was a shareholder, she could utilise the £2,000 dividend allowance.
e. the remuneration must be reasonable for the work undertaken.
Correct, chapter reference 11B1B
248
Fiona and her husband Mike adopted their son, Lewis, in 2010 when he was three months old. If they wish to take out some tax efficient investments in their son's name:
You must select ALL the correct options to gain the mark:
a. a National Savings Investment account can be opened on his behalf.
b. a maximum of £2,000 can be placed into Lewis's Child Trust Fund each year.
c. they can invest up to £20,000 in a cash ISA with a friendly society in Lewis's name.
d. they can set up a stakeholder pension for Lewis.
a. a National Savings Investment account can be opened on his behalf.
d. they can set up a stakeholder pension for Lewis.
Correct, chapter reference 11B2
249
Robert is 40 and earns £51,450 and Clare is 39 and earns £20,000. They have two children under 10 and are in receipt of child benefit. To maximise their entitlement, they should consider:
You must select ALL the correct options to gain the mark:
a. Clare asking her employer to do a salary exchange pension contribution of £7,500.
b. Robert asking his employer to do a salary exchange pension contribution of at least £1,450.
c. Robert making a gift aid contribution of at least £1,160 net.
d. Clare making a pension contribution of £5,000 gross.
e. Robert making an ISA contribution of at least £1,450.
b. Robert asking his employer to do a salary exchange pension contribution of at least £1,450.
c. Robert making a gift aid contribution of at least £1,160 net.
Correct, chapter reference 11B2B
250
Tracy, who has never married, is employed and she is considering reducing the hours she works. If she does this and her earnings fall below £120 per week:
You must select ALL the correct options to gain the mark:
a. she will lose any entitlement to Maternity Allowance.
b. she will no longer accrue State pension benefits.
c. she will no longer accrue credits towards contribution-based Employment and Support Allowance.
d. her earnings will no longer be considered taxable earnings.
e. she will continue to accrue benefits towards the new style Jobseeker's Allowance.
a. she will lose any entitlement to Maternity Allowance.
b. she will no longer accrue State pension benefits.
c. she will no longer accrue credits towards contribution-based Employment and Support Allowance.
Correct, chapter reference 11C1
