Administration: Income Tax and Capital Gains Tax Flashcards
Who is responsible for settling the deceased’s income tax and capital gains tax for the tax year in which they died?
A. The deceased’s solicitor
B. HMRC
C. The residuary beneficiaries
D. The personal representatives
D. The personal representatives
Explanation: It is the legal responsibility of the personal representatives (PRs) to finalise the deceased’s tax affairs for the year of death, including income and capital gains tax.
Which of the following is TRUE regarding Capital Gains Tax (CGT) and death?
A. Death is not treated as a disposal for CGT purposes
B. Gains accrued during the deceased’s lifetime are taxed upon death
C. PRs must always pay CGT before probate is granted
D. PRs pay CGT on all gains made during the deceased’s lifetime
A. Death is not treated as a disposal for CGT purposes
Explanation: Death does not trigger CGT. Instead, the base value of assets is “reset” to the date of death value, eliminating prior gains.
What form do PRs issue to beneficiaries to show income received and tax paid?
A. R80
B. P45
C. SA302
D. R185
D. R185
Explanation: Form R185 is used to inform beneficiaries of the income they’ve received from the estate and how much tax has already been paid on it.
What is the threshold under which PRs do NOT need to report or pay income tax on estate income?
A. £250
B. £500
C. £1,000
D. £2,000
B. £500
Explanation: If total estate income is £500 or less per tax year, PRs are not required to report or pay income tax on it.
A PR sells a painting for £30,000. Its probate value was £10,000. How much of this is considered a taxable gain for CGT purposes?
A. £10,000
B. £20,000
C. £30,000
D. £40,000
B. £20,000
Explanation: The gain is calculated from the date-of-death value (probate value). £30,000 - £10,000 = £20,000 taxable gain.
A PR transfers quoted shares to a beneficiary. The shares were worth £50,000 at date of death and £60,000 on transfer. What is the CGT liability at transfer?
A. £10,000 gain in PRs’ hands
B. £10,000 gain in beneficiary’s hands
C. No CGT due at transfer
D. Gain taxed at 28 percent immediately
C. No CGT due at transfer
Explanation: Transfers of assets from PRs to beneficiaries are not disposals for CGT purposes and so do not trigger any tax charge.
A PR collects £600 in bank interest during administration. What should they do?
A. Transfer the income to beneficiaries without tax
B. Claim a tax refund from HMRC
C. Report the income and pay income tax on the full amount
D. Add it to the IHT calculation
C. Report the income and pay income tax on the full amount
Explanation: Since the income exceeds the £500 threshold, the entire amount is taxable, and PRs must report it and pay IT.
Which of the following is a reason PRs might prefer to transfer an asset rather than sell it?
A. They must follow the intestacy rules
B. The sale is always less efficient
C. Beneficiary cannot claim main residence relief
D. To allow the beneficiary to use their own CGT allowance
D. To allow the beneficiary to use their own CGT allowance
Explanation: Transferring an asset allows a beneficiary to sell it themselves and make use of their own annual CGT allowance.
A PR sells an estate asset for £120,000. Its probate value was £95,000. There are no other gains. CGT allowance is £6,000. What is the taxable gain?
A. £10,000
B. £25,000
C. £24,000
D. £19,000
D. £19,000
Explanation: Gain = £120,000 - £95,000 = £25,000. After applying the £6,000 allowance: £25,000 - £6,000 = £19,000 taxable.
A beneficiary receives £300 estate income and a Form R185 showing £60 tax paid. The beneficiary is a basic rate taxpayer. What happens?
A. They do nothing – tax already paid
B. They must top-up the tax
C. They get a refund
D. The PRs must report this to HMRC
A. They do nothing – tax already paid
Explanation: Because the beneficiary is taxed at the same basic rate, no further tax is due.
A PR sells jewellery for £5,000. What is the CGT treatment?
A. The gain is taxed at 28 percent
B. No tax-free allowance applies
C. Exempt from CGT as under £6,000
D. Beneficiary pays the tax
C. Exempt from CGT as under £6,000
Explanation: Under s262 TCGA, chattels sold for less than £6,000 are CGT-exempt
PRs have sold one asset for a gain of £30,000 and another for a loss of £5,000 during administration. CGT allowance is £6,000. What is the chargeable gain?
A. £19,000
B. £25,000
C. £24,000
D. £26,000
A. £19,000
Explanation: Net gain = £30,000 - £5,000 = £25,000. After CGT allowance of £6,000, the chargeable gain is £19,000.
