Calculations Only

Question 1

Michael, a sole trader, starts in business on 1 July 2023, making up accounts to 30 June. His profits are forecast to be:
- Year ended 30 June 2024 120,000
- Year ended 30 June 2025 130,000
How will his profits be taxed?

Answer 1

Michael started business in the transitional year. Michael’s profits will be taxed as follows:

2023/24
1 July 2023 to 5 April 2024
£120,000 × 9 ÷ 12 = 90,000

2024/25
6 April 2024 to 5 April 2025
(£120,000 × 3 ÷ 12) + (£130,000 × 9 ÷ 12) = £30,000 + £97,500 = 127,500

Question 2

Priya makes a net charitable donation of £2,560 to her local hospice via gift aid. She is a higher rate taxpayer. What amount will be taken into account in her tax calculation?

Answer 2

The correct answer is £3,200. Charitable donations via gift aid are deemed to be paid net of 20% tax so the gross equivalent is £2,560 ÷ 0.8 = £3,200
E-learn module 1

Question 3

Abdul is aged 20 and uses part of a recent inheritance to fund a net contribution of £2,880 to a personal pension scheme. He is a student and has a part-time job. His gross earnings are £11,965 and he received bank interest of £1,000.
What is Abdul’s taxable income?

Answer 3

The correct answer is £395.
Abdul’s taxable income is £11,965 plus interest of £1,000, less the personal allowance of £12,570 = £395.
Remember that £2,880 is the net amount that Abdul pays into his pension fund. This amount is grossed-up by multiplying 2,880 x 1.25. He has, therefore, already received tax relief of £720 at source.
E-learn module 1

Question 4

Jane, aged 36, has gross pensionable salary of £50,000. She has no other income. Jane is a member of her employer’s occupational pension, into which she pays 5% of her salary.
What is her taxable income for the current tax year?

Answer 4

The occupational pension contributions are deducted from Jane’s earnings.
So, her taxable income is:
Salary 50,000
Less pension contribution (£50,000 at 5%) (2,500)
Less personal allowance (12,570)
Taxable income 34,930
E-learn module 1

Question 5

For 2023/24, Sally has a share of partnership profits of £260,000. During the year, she made gross personal pension contributions of £30,000 and paid interest of £65,000 on a
loan taken out to finance the partnership. How much loan interest can be deducted?

Answer 5

Sally’s adjusted total income is £230,000 (£260,000 – £30,000), so the cap is £57,500 (£230,000 × 25%). Therefore, only £57,500 of the loan interest can be deducted with no relief being given for the remaining £7,500.

Question 6

Bill is a 25% shareholder in his family haulage business, Laurie’s Lorries Co. Ltd.

He borrows £100,000 from the bank to buy his uncle Fred’s 25% shareholding on Fred’s retirement.

The bank charges him interest at 6%, i.e. £6,000 a year.

How much can he claim back?

Answer 6

£6,000

Relief is at the borrower’s top tax rate, but is subject to the cap of £50,000 or 25% of adjusted total income, whichever is higher.

Question 7

Sharon made the following gross personal pension contributions:
* £32,000 during 2020/21;
* £16,000 during 2021/22; and
* £28,000 during 2022/23.
How much can she carry forward?

Answer 7

Sharon has a total of
£104,000 (£60,000 + £8,000 + £24,000 + £12,000) available for 2023/24.

Question 8

Susie is provided with a petrol-powered car with a list price of £27,000.

Accessories amounted to a further £4,500, although the total discounted cost to the employer was
£28,750.

The car has CO2 emissions of 138 g/km.

What is the relevant percentage charge and benefit amount?

Answer 8

The relevant percentage charge is 32%, after rounding the emissions figure down to 135 g/km, so the benefit for 2023/24 is:

32% × (£27,000 + £4,500) = £10,080.

The taxable car benefit is calculated as a percentage of the list price of the car, with the percentage based on the level of a car’s carbon dioxide (CO2) emissions. The use of the car’s list price means that any discounts given to the employer on the purchase of the car are ignored. The cost of any accessories is included in the list price, with the exception of a car phone.

Question 9

On 6 August 2023, an employee is provided with a newly registered diesel-powered company car that does not meet the RDE2 standard. The car has a list price of £16,500 and CO2 emissions of 121 g/km. Calculate the taxable benefit for 2023/24.

Answer 9

The relevant percentage charge is 33% (16% + 13% + 4% = 33%).
The 13% is calculated by first rounding down the emissions of 121 g/km to 120 g/km.
The base percentage is 16% at 55 g/km and 120 g/km is 65 g/km above 55 g/km.
For every 5g/km, the base percentage of 16% is increased by 1%, resulting in
65 ÷ 5 = 13% to add to the base 16% plus the 4% diesel addition.
The car is available for eight months of the year, so the benefit for 2023/24 is
£3,630 (£16,500 × 33% × 8 ÷ 12 = £3,630).
R03 page 1/21

Question 10

Sara has a loan of £20,000 from her employer, which is used to purchase a house. She
pays her employer interest of 1.0%. The taxable benefit for 2023/24 is….

Answer 10

£250
Page 1/22 study text

Question 11

What is the calculation for reducing the personal allowance?

Answer 11

Divide the amount in excess of £100,000 by 2. Then take this away from the personal allowance of £12,570.
i.e if they earn £105,000, you calculate £5,000/2 = £2,500, then £12,570 - £2,500 = £10,070

Question 12

For 2023/24, Jim has a trading profit of £126,000 and made gross personal pension contributions of £20,000. What is his net adjusted income and reduced personal allowance?

Answer 12

£106,000 adjusted net income
£9,570 personal allowance
Example 1.11, page 1/27 of R03 study text

Question 13

For 2023/24, Paula has a salary of £40,000. Her husband Peter has a trading profit of £10,000.

They elect to transfer the fixed amount of personal allowance from Peter to Paula (marriage allowance).

Neither of them is entitled to the married couple’s allowance.

What are their respective income tax liabilities?

Answer 13

Peter’s personal allowance is reduced to
£12,570 – £1,260 (10% election) = £11,310.

Paula - £5,234
£40,000 - £12,5750 (own PA) = £27,430
£27,430 x 20% = £5,486
£5,486 - £252 (20% of Paul’s 10% election) = £5,234

(Example 1.12, page 1/28 of R03 study text)

Question 14

For 2023/24, John has taxable income (after allowances and reliefs) of £180,000, of which £170,000 is earnings and £10,000 is savings income. Calculate the tax due.

Answer 14

£67,203
Full breakdown available on page 1/34 of R03 study text

Question 15

Joe, an additional-rate taxpayer, puts some money into a building society account for his
five-year-old son, Peter. In the first year, the income this generates is £120. What is the income tax liability?

Answer 15

120 x 45% = £54
No PSA available as additional rate tax payer

Question 16

Maxine’s net income is £56,000 and she receives Child Benefit of £2,074.80 in respect of
her two children. What is her child benefit tax charge for 2023/24?

Answer 16

[(£2,074.80 × 1%) × ((£56,000 – £50,000) ÷ 100)] = [20.748 × £60] = £1,244.
Tax charge always rounded down for this.

Question 17

Eddie has weekly earnings of £1,200 for September 2023. His earnings are over the primary threshold, so he must pay NICs. How much?

Answer 17

The first £242 per week is not subject to NICs.
The next £725 (£967 – £242 = £725) is subject to employee NICs at 12%, i.e. £87.
The next £233 (£1,200 – £967 = £233) is subject to employee NICs at 2%, i.e. £4.66.
Eddie’s total employee NICs are £91.66.

Question 18

Richard’s earnings are £1,200 per week. He is not aged under 21, is not an apprentice nor an armed forces veteran and does not work in a freeport.
Calculate the employer’s NIC contribution.

Answer 18

The first £175 is not subject to NICs.
The next £1,025 is charged at 13.8% = £141.45, so the total employer NICs are £141.45.
If Richard had been aged under 21, an apprentice aged under 25 or an armed forces
veteran in the first year of his civilian employment, then the employer’s contribution would
have been: (£1,200 – £967) = £233 at 13.8% = £32.15.
If Richard had been a qualifying employee working in a freeport, then the employer’s
contribution would have been: (£1,200 – £481) = £719 at 13.8% = £99.22.

Question 19

Richard’s earnings are £1,200 per week. He is under 21.
Calculate the employer’s NIC contribution.

Answer 19

(£1,200 – £967) = £233 at 13.8% = £32.15.

Question 20

If the taxable benefit of a company car is £6,000, calculate the employers NICs.

Answer 20

£828 (£6,000 at 13.8%)

Question 21

Anna’s taxable profits from self-employment for the year 2023/24 are £65,000. What are her NICs liabilities?

Answer 21

Class 2 £3.45 × 52 = £179.40
Class 4 [(£50,270 – £12,570) × 9%] + [(£65,000 – £50,270) × 2%] = £3,393.00 + £294.60 = £3,687.60
Note that class 2 NICs are still payable even though maximum class 4 NICs are paid at the main rate.

Question 22

David bought a property on 1 August 2009. He lived in the property for eight years until he moved in with his parents. The property was then unoccupied until it was sold on 31 July 2023.

What is the chargeable portion of the gain?

Answer 22

The disposal resulted in a gain of £100,000.
The gain is time apportioned based on the number of years David lived in the property.
This is eight years, plus the final period of nine months, leaving five years and three months of the 14 years subject to CGT.
The chargeable portion of the gain is: £100,000 × 5.25 ÷ 14 = £37,500.

Question 23

Justina bought a holiday cottage in Devon for £130,000 in February 2010, paying legal costs of £300 and SDLT of £1,300.

She spent £30,000 on an extension in August 2015
and sold the cottage for £300,000 in May 2023.

The estate agent’s fees for selling the cottage were £3,000 and the legal costs of the sale were £1,500.

What is her chargeable gain?

Answer 23

£133,900

Any incidental costs of purchase and sale are deductible. These costs may include stockbrokers’ fees, legal costs, estate agents’ fees, stamp duty, stamp duty reserve tax (SDRT) and stamp duty land tax (SDLT). A further deduction is allowed for any expenditure on the asset for the purpose of enhancing its value; for example, the cost of building an extension to a house. Expenses that can be claimed against income, or could be if there were any income, e.g. repairs, are not allowed.

(3/11 of R03 study text)

Question 24

Sven has the following chargeable gains and losses in 2023/24:
* a gain of £10,000 on 15 April 2023 taxable at 20%;
* a loss of £15,000 on 1 May 2023; and
* a gain of £40,000 on 20 January 2024 taxable at 28%.
Calculate CGT, using the most tax efficient method, making use of the AEA and losses.

Answer 24

£7,320
Page 3/12 of R03 study text

Question 25

Don invested £10,000 in a unit trust in 1975. Its value on 31 March 1982 was £13,000 and
he cashes in the holding in May 2023 for £30,000.
What is his capital gain?

Answer 25

£17,000
Page 3/13 of R03 study text

Question 26

What is the formula for a part disposal of an asset?

Answer 26

A / (A+B)
x A
Where A is the proceeds of the part disposal
And B is the market value of the part retained

Question 27

Paul bought 50 acres of land in 2000 for £100,000. In 2016 he sold 10 acres of the land for £50,000. The value of the remaining land was £350,000.
Calculate the capital gain.
An asset cost £1,000 and part of it is disposed of for £2,000, the remainder being worth £6,000.
Calculate the capital gain.

Answer 27

Proceeds £50,000
Less: cost £100,000 x (£50,000/(£50,000+£350,000)) ie £12,500
Capital gain is £37,500
The deemed cost of the part disposed of is (£2,000 ÷ (£2,000 + £6,000)) × £1,000
= £250. The gain is thus £1,750 and the balance of cost for any subsequent disposal
would be £750.

Question 28

Graham sold two paintings in the current tax year.
He does not have any taxable income for this year and so will be liable to CGT at the basic rate.
ASSET A
Sales proceeds 49,700
Selling costs Nil
Total costs of acquisition 25,000
ASSET B
Sales proceeds 175,000
Selling costs 5,000
Total costs of acquisition 165,000
How much CGT will Graham have to pay?

Answer 28

2,370
Asset A = 49,700 – 25,000 = 24,700
Asset B = 175,000 – 165,000 – 5,000 = 5,000
24,700 + 5,000 = 29,700
29,700 – 6,000 = 23,700
23,700 x 10% = 2,370

Question 29

Andrew left the UK on 15 June 2023 to stay with his parents in Germany, returning to the UK on 31 December 2023. He has previously been resident in the UK and is retired, and his only home is in the UK. What is Andrews’s residency status for 2023/24?

Answer 29

UK resident because:
Previously been UK resident (auto non-resi. test)
Been in UK more than 16 days (auto non-resi. test)
Has a home in the UK (auto resi. test)

Question 30

Draw up the residency status table for sufficient UK ties testing
Consider days in UK, previously resident and not previously resident.

Answer 30

Page 5/4 of R03 study tex

Question 31

Sian is a widow who has a large house with several spare rooms; her family has grown up
and moved out. She lets a room for £150 a week to Luke. What are Sian’s 2 options for being taxed and which one is cheapest for her?

Answer 31

Sian has the choice of being taxed on rent less expenses, or the excess over £7,500 with
no deduction for expenses. Her expenses are £1,500 a year and she is a basic-rate
taxpayer.
* The rent-less-expenses method would result in a tax bill of (£7,800 – £1,500) × 20%
= £1,260.
* The rent-a-room method would result in a tax bill of (£7,800 – £7,500) × 20% = £60.
Sian therefore opts for the rent-a-room method.

Question 32

For the year ended 30 June 2023, DEF plc has taxable total profits of £2.4 million. Calculate the corporation tax due.

Answer 32

Nine months of the period fall into the financial year 2022 and three months into the financial year 2023.

= (£2.4m × 9 ÷ 12 × 19%) + (£2.4m × 3 ÷ 12 × 25%)
= £342,000 + £150,000
= £492,000

Question 33

Helen gifted some shares in her personal trading company to her son on 30 June 2023 when they were worth £50,000. The shares had cost Helen £14,000. Helen and her son jointly elected to claim holdover relief in respect of the gift.

What is the base cost of Helen’s son’s shares and how will he be taxed on disposal of the assets?

Answer 33

Helen’s son will receive the shares with a base cost of £50,000 (Helen’s cost) – £36,000 (Helen’s gain) = £14,000.

When he comes to dispose of the shares in the future, he will be taxed on the disposal proceeds (amount unknown this point) less the base cost of £14,000.

Example 3.13 on page 3/17 of study text

Question 34

Lucinda made gains of £110,000 during 2023/24. However, she reinvested £70,000 into a qualifying EIS investment. How much are her gains reduced to for the tax year, and what will happen to the deferred gains upon disposal of the EIS shares in future?

Answer 34

£40,000 for 2023/24.

The deferred gains will be crystallised.

Question 35

Mark made gains of £50,000 during 2023/24. However, she reinvested £40,000 into a qualifying EIS investment. How much are his gains reduced to for the tax year, and what will happen to the deferred gains upon disposal of the EIS shares in future?

Answer 35

£10,000 for 2023/24.

The deferred gains will be crystallised.

Question 36

Molly made gains of £250,000 during 2023/24. However, she reinvested £50,000 into a qualifying EIS investment. How much are her gains reduced to for the tax year, and what will happen to the deferred gains upon disposal of the EIS shares in future?

Answer 36

£50,000 for 2023/24.

The deferred gains will be crystallised.

Question 37

The trustees of the Smith Trust sell one of the trust’s residential properties on 4 May 2023 for £350,000. The property was bought on 19 March 2009 for £260,000.
Mr Smith has created two other trusts since 6 June 1978.
a. Calculate the CGT payable for 2023/24.
b. State when this is payable to HMRC.

Answer 37

Because of the two other trusts, the exemption is reduced to £1,000, giving a taxable gain as follows:

Proceeds 350,000
Less cost (260,000)
Chargeable gain 90,000
Less annual exemption (1,000)
Taxable gain 89,000
CGT due at 28% (because it’s residential property) = £24,920

CGT liability is payable to HMRC within 60 days of selling the property.

Question 38

George created an interest in possession trust in 1990. The value of the asset at the date of transfer was £60,000. The value of the asset at the date of acquisition was £20,000. The life tenant dies on 8 May 2023 and the asset is worth £180,000 at that date.

What CGT should the trustees pay?

Answer 38

The gain of £40,000 was held over to the trustees.

The gains made after 1990, when the trust was set up, escape a CGT liability. However, the trustees are now liable to CGT on the held-over gain when the trust was set up (value of asset at date of transfer £60,000, less acquisition cost £20,000 gives a chargeable gain of £40,000) taxed at the trust rate of 20% (the asset was shares) = £8,000.

Example 3.21 - page 3/24 study text

Question 39

Alison died on 1 May 2007, leaving her estate to her husband, Angus. Alison’s only
lifetime gift was £30,000 to her sister in July 2005 (the nil rate band for 2007/08 was
£300,000). Angus made a gift of £400,000 to his son on 1 August 2019 and a further
gift of £400,000 to his daughter on 1 September 2020. Angus died on 1 October
2023 and his estate is valued at £450,000. This is left entirely to the children.
Calculate the amount of IHT payable in respect of Angus’ lifetime gifts (ignore annual
exemptions throughout) and his estate (ignore the RNRB).

Answer 39

Alison did not use 90% of her nil rate band: 100 × (£300,000 – £30,000) ÷ £300,000
= 90%.

The nil rate band available is therefore: £325,000 × 190% = £617,500.

The gift to the son used £400,000 of this, so £217,500 is set against the gift to the
daughter. This gift was between three and four years of the date of Angus’s death,
so there is a percentage reduction (taper relief) of 20%.

IHT of £58,400 will be payable as a result of Angus’s death: [(£400,000 – £217,500)
× 40%] − 20% = £58,400.

IHT of £450,000 at 40% = £180,000 will be payable in respect of the estate.

Question 40

In January 2018, Joe made a gift of a holiday cottage to his daughter. At that time the cottage was valued at £200,000. Joe continued to use the cottage for holiday purposes until his death in September 2023, at which time the cottage is valued at £365,000. Joe did not make any other lifetime gifts. How will this gift have been treated for IHT purposes during Joe’s lifetime and on his death if:

a. he paid a market rent; or

b. no rent was paid?

Answer 40

a. If a market rent was paid then the gift will have been a PET, reduced by two annual exemptions of £3,000. As Joe did not survive for seven years the amount of nil rate band available against Joe’s estate would be reduced by £194,000 (£200,000 – £3,000 – £3,000).

b. If no rent was paid then there would have been a gift with reservation, and the cottage would also be included in Joe’s estate at a value of £365,000.

Question 41

Jim sets up a discretionary trust in August 2023 for his grandchildren for £860,000. He had a full nil rate band available, but he had already used up his annual exemptions to date. Calculate the amount of IHT payable on setting up the trust if:

(a) the trustees paid the liability; and

(b) Jim paid the tax liability.

Answer 41

Using the rates for 2023/24, the IHT payable on setting up the trust was as follows:

a. If the trustees paid the tax, this was the amount of the liability:
£860,000 – £325,000 = £535,000.
The IHT payable would be: £535,000 × 20% = £107,000.

b. If Jim paid the tax, the transfer would have been grossed up and the tax would have been:
£535,000 x 1.25 = £668,750 x 20% = £133,750.

The reason the tax is higher if paid by the settlor, rather than if paid by the trustees, is that the IHT charge is based on the total loss to the settlor’s estate. The grossing-up of the gift enables tax due to be calculated on the total (gross) gift.

(Page 4/35 of R03 study text)

Question 42

Jarrah sets up a discretionary trust in August 2013 for his grandchildren for £860,000. The trust is valued at the ten-year anniversary at £1.1m.

Calculate the amount of IHT payable on the ten-year anniversary of the trust.

Answer 42

First, calculate the hypothetical transfer and the effective rate to calculate the periodic charge.

As the trust fund is valued at £1.1m at the ten-year anniversary and the nil rate band is £325,000, the rate would be:

(£1,100,000 – £325,000) × 30% × 20% = £775,000 × 30% × 20% = £46,500.

This is an effective rate of 4.227% (£46,500 ÷ £1,100,000 = 0.042272727).

The ten-year anniversary charge, or periodic charge, is therefore:
£1,100,000 × 4.227% = £46,497.

Question 43

For an estate with a net value of £2.35 m, the RNRB for 2023/24 would be restricted to what amount?

Answer 43

Nil - RNRB lost

(£175,000 – ((£2.35 m – £2 m) ÷ 2))

Question 44

For an estate with a net value of £2.2 m, the RNRB for 2023/24 would be restricted to what amount?

Answer 44

£75,000

(£175,000 – ((£2.2 m – £2 m) ÷ 2))

Question 45

For an estate with a net value of £2.25 m, the RNRB for 2023/24 would be restricted to what amount?

Answer 45

£50,000

(£175,000 – ((£2.25 m – £2 m) ÷ 2))

Question 46

For an estate with a net value of £2.11 m, the RNRB for 2023/24 would be restricted to what amount?

Answer 46

£12,000

(£175,000 – ((£2.11 m – £2 m) ÷ 2))

Question 47

Debbie made a PET of £350,000, after deducting any available exemptions. Allowing for the NRB, what would be the IHT payable if she died after 3 years but not more than 4?

Answer 47

£350,000 - £325,000 = £25,000

£25,000 x 40% = £10,000
£10,000 x 20% = £2,000

£10,000 - £2,000 = £8,000

Figure in bold is the taper relief available

Question 48

Debbie made a PET of £350,000, after deducting any available exemptions. Allowing for the NRB, what would be the IHT payable if she died after 4 years but not more than 5?

Answer 48

£350,000 - £325,000 = £25,000

£25,000 x 40% = £10,000
£10,000 x 40% = £4,000

£10,000 - £4,000 = £6,000

Figure in bold is the taper relief available

Question 48

Debbie made a PET of £350,000, after deducting any available exemptions. Allowing for the NRB, what would be the IHT payable if she died after 5 years but not more than 6?

Answer 48

£350,000 - £325,000 = £25,000

£25,000 x 40% = £10,000
£10,000 x 60% = £6,000

£10,000 - £6,000 = £4,000

Figure in bold is the taper relief available

Question 49

Debbie made a PET of £350,000, after deducting any available exemptions. Allowing for the NRB, what would be the IHT payable if she died after 6 years but not more than 7?

Answer 49

£350,000 - £325,000 = £25,000

£25,000 x 40% = £10,000
£10,000 x 80% = £8,000

£10,000 - £8,000 = £2,000

Figure in bold is the taper relief available

Question 50

Adaku made a payment of £200,000 into a discretionary trust for his children in the previous tax year.

In this tax year, he makes another payment of £300,000 into the same trust.

He has already used his annual gifting exemption for the current and previous tax years.

What immediate tax charge, if any, would be payable on either of the payments?

Answer 50

£35,000 in this tax year.

Any chargeable lifetime transfers into discretionary trusts above the available nil rate band [£325,000] in the previous seven years would incur an immediate tax charge of 20%. Adaku’s first payment is within the nil rate band [£325,000 - £200,000], but he now has an available nil rate band of £125,000 for the next seven years. Of the £300,000 payment in the current tax year, £125,000 utilises Adaku’s remaining nil rate band, meaning the remaining £175,000 would be subject to a 20% tax charge of £35,000.
(Chapter reference: 4H5A)

Question 51

In May 2023, Kenny makes a chargeable gain of £15,000, and then £16,000 in July 2023. Neither gain was related to residential property. In the same tax year, he has taxable income after deducting reliefs and allowances of £35,200 and makes a net payment to his personal pension of £4,000. What will his CGT liability be assuming no further chargeable gains?

Answer 51

Chapter reference: 12A5C.

The correct answer is: £4,250.

In the 2023/24 tax year, Kenny has realised capital gains totalling £31,000, meaning a taxable gain of £25,000 [£31,000 gain - £6,000 capital gains allowance]. Kenny has also made a gross pension contribution of £5,000 [£4,000 x 0.8], meaning the basic-rate tax band has been extended to £42,700 [£37,700 + £5,000]. Once we deduct the taxable income, Kenny has a basic-rate tax band of £7,500 remaining [£42,700 - £35,200]. Of Kenny’s £25,000 taxable gain, £7,500 is taxed at 10% [£750] and the remaining £17,500 is taxed at 20% [£3,500]. This gives a total liability of £4,250.

Question 52

Peter, a bachelor, gifted a lump sum of £1m to his son Adam in February 2019. What would be the inheritance tax liability on this gift if Peter died in August 2023 leaving no residential property, assuming this was the only gift Peter had ever made?

Answer 52

Chapter reference: 4B2D.

The correct answer is: £160,560.

Things to consider: Annual Exempt Amounts and Carry Over, Taper Relief and Nil Rate Band.

Peter made a single lifetime gift to Adam and so the annual exemption of £3,000 x 2 can be used [4B1]. The amount chargeable is £1m - [£3,000 x 2], which equals £994,000. The nil rate band can be deducted: £994,000 - £325,000, giving £669,000. This is chargeable at 40% IHT, which equals £267,600. As the gift was made 4 - 5 years before his death, the tax payable is tapered by 40%: £267,600 x 60%, which equals £160,560.

Question 53

Susan, aged 79, has pension income of £16,420 and bank interest of £4,160. Her income tax liability for 2023/24 will be how much?

Answer 53

Chapter reference: 12A5A.

The correct answer is: £1,172.

Things to consider: Personal Allowance, Personal Savings Allowance and Starting Rate for Savings

Susan will have total income of £20,580 [£16,420 + £4,160]. Regarding her pension income, £3,850 will be taxable at 20% once Susan’s personal allowance has been deducted [£16,420 - £12,570], meaning a liability of £770. In terms of Susan’s saving income, she will have £1,150 of starting rate of savings available [£5,000 starting rate - £3,850 amount personal allowance is exceeded] and a personal savings allowance of £1,000 available. This means £2,010 [£4,160 - £1,150 - £1,000] will be taxable at 20%, meaning a liability of £402. Susan’s total liability is £1,172 [£770+£402].

Question 54

Phil is aged 45 and employed. What is his National Insurance contribution liability if he earns £1,050 per week?

Answer 54

Chapter reference: 12A5B.

The correct answer is: £88.66 per week.

As Phil is employed, he will be personally liable to Class 1 National Insurance contributions [NICs]. Of Phil’s weekly earnings, the first £242 will not be subject to NICs. For earnings between £242 and £967, the NIC liability shall be 12%, which equates to £87 [£725 x 12%]. Any earnings in excess of £967 will be subject to a NIC liability of 2%, which equates to £1.66 [£83 x 2%]. Phil’s total NIC liability will be £88.66 per week.

Question 55

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 2023. He signed the contract on 1 December 2023 and has agreed to receive the money in July 2024. Assuming he has no other gains or unused losses to carry forward, how much capital gains tax will be due, and when?

Answer 55

Chapter reference: 3A1/3E/3H.

The correct answer is: £9,400 on 31 January 2025.

To calculate the tax [3E], first deduct the annual exempt amount of £6,000 from the capital gain. As Paul is selling a business he has owned for 20 years, the rate of tax applying to gains over the annual exempt amount is taxed at 10% due to business asset disposal relief, meaning tax due is £9,400 [£100,000 - £6,000 x 10%].

As the contact was signed on 1 December 2023, this is treated as the date of disposal [3A1]. Due to this date of disposal, tax would be payable on 31 January 2025 [3H].

Question 56

An employee has a loan of £20,000 from her employer that 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 2023/24 is 2.25%?

Answer 56

£200

Chapter reference: 1G3.

The employee has received a ‘cheap’ loan, which is one with a lower interest rate than the market rate, from an employer. The employee will therefore be taxed on the benefit they receive from the arrangement. To calculate the taxable benefit, you are required to calculate the difference between the amount of interest charged and the official rate [2.25% - 1.25%]. You next need to apply this difference to the loan, providing the answer of £200 [£20,000 x 1%].

Question 57

Simon is both employed and self-employed. For 2023/24, he will pay class 2 NICs of £179.40, class 4 NICs of £2,018.70 and class 1 NICs of £1,491.60. What amount of class 4 NICs will actually be due?

Answer 57

£1,901.40 (£3,393.00 – £1,491.60).

Chapter 2D3

Question 58

Sully is an employee who is paid £3,000 gross a month. For the month of December 2023, he will have paid employee class 1 National Insurance contributions of….

Answer 58

The correct answer is: £234.24.

Sully’s earnings have been given as a MONTHLY figure, so use the monthly NICs thresholds.

The first £1,048 of earnings are below the primary threshold and not liable for NIC.

The remaining £1,952 of Sully’s earnings [£3,000 - £1,048] is taxable at 12%, meaning Sully’s class 1 NIC liability for December is £234.24.

Question 59

Bill Jones (who is not a first-time buyer) buys a house in England (which is his only property) for £379,000. Calculate the SDLT.

Answer 59

First £250,000 x 0% = £0
£250,001 to £379,000 = £129,000 x 5% = £6,450

Question 60

Bill Jones (who is not a first-time buyer) buys a house in England (which is his only property) for £379,000 which includes £4,000 of carpets, curtains, a cooker, fridge and washing machine. Calculate the SDLT.

Answer 60

£379,000 - £4,000 = £375,000
First £250,000 x 0% = £0
£250,001 to £375,000 = £125,000 x 5% = £6,250

Question 61

Claire Brown, a first-time buyer, buys a house for £625,000. Calculate the SDLT.

Answer 61

First £425,000 x 0% = £0
£425,001 to £625,000 = £200,000 x 5% = £10,000

Question 62

Claire Brown, a first-time buyer, buys a house for £626,000. Calculate the SDLT.

Answer 62

First £250,000 x 0% = £0
£250,001 to £626,000 = £376,000 x 5% = £18,800

(First time buyer relief not available at all on purchases over £625,000)

Question 63

Susan Smith buys a holiday home in England for £405,000. She already owns a main residence. At the end of the day of purchase, Susan owns two properties and is not replacing her main residence. Calculate the SDLT.

Answer 63

First £250,000 x (0% + 3%) = £7,500
£250,001 to £405,000 = £155,000 x (5% + 3%) = £12,400

Question 64

Alex and Betty exchanged their respective residential properties in England.

Alex’s house was valued at £385,000 with Betty’s house valued at £350,000.

Betty made up the difference of £35,000 by making a cash payment to Alex.

Neither Alex nor Betty own any other property.

What SDLT will be payable in respect of this transaction?

Answer 64

Betty has acquired a residential property valued at £385,000 and so, she will pay SDLT of £6,750:

(£250,000 at 0%) + (£135,000 at 5%).

Alex has acquired a residential property valued at £350,000 and so, he will pay SDLT of £5,000:

(£250,000 at 0%) + (£100,000 at 5%).

The cash payment has no relevance.

Question 65

Josh purchased £4,460 of quoted shares electronically through a stockbroker.

What SDRT will he pay?

Answer 65

£4,460 x 0.5% = £22.30