Chapter 9 - Direct investments

Question 1

Julie has earned income of £13,000 and interest from savings of £6,000. She has no other income or reliefs. How much income tax, if any, will she pay on her savings interest?

Select one:

a. £86.
b. £1,000.
c. £100.
d. £430.

Answer 1

a. £86.

chapter reference 9A1

Question 2

A lessor of furnished residential property may claim a deduction against taxable profits for the replacement of all of the following, APART from a:

Select one:

a. bed.
b. dining table.
c. bath.
d. washing machine.

Answer 2

c. bath.

chapter reference 9C3B

Question 3

Jean, who is 52 and self-employed has net profits of £41,000 in 2021/22. She receives interest of £50 from her National Savings and Investments Direct saver account. Assuming she has no other savings, how much income tax, if any, will Jean need to pay on her interest?

Select one:

a. £20.
b. £5.
c. £10.
d. Nil.

Answer 3

d. Nil.

chapter reference 9A2A

Question 4

Harry, a higher-rate taxpayer, has gilts that were left to him by his father several years ago. Harry has already fully utilised his personal savings allowance and has elected to receive interest from his gilts net of 20% income tax. For 2021/22 he received an interest payment of £208. What additional income tax is due?

Select one:

a. £83.20.
b. £41.60.
c. £52.
d. £104.

Answer 4

c. £52.

chapter reference 9A3A

Question 5

Lee has a number of residential properties that he lets out to tenants. What type of expenditure would be a deductible expense for income tax purposes?

Select one:

a. Expenditure reimbursed by insurance.
b. Cleaning and gardening.
c. Renovations to make the building fit for letting.
d. Alterations and improvements.

Answer 5

b. Cleaning and gardening.

chapter reference 9C2C

Question 6

Sadia, who is an additional-rate taxpayer, received dividends totalling £11,360 from her share portfolio in 2021/22. What income tax is she liable to pay on this income?

Select one:

a. £4,212.00.
b. £3,566.16.
c. £2,423.16.
d. £3,042.65.

Answer 6

b. £3,566.16.

chapter reference 9B1A

Question 7

Which National Savings and Investments product, when it is available, is NOT tax free?

Select one:

a. Junior ISA.
b. Savings certificates.
c. Guaranteed growth bond.
d. Direct ISA.

Answer 7

c. Guaranteed growth bond.

chapter reference 9A2D

Question 8

Sam, who earns £35,000 a year has shares in ABC plc and opts to receive new shares instead of a cash dividend. The market value of the new shares that he receives is £800. If his dividend allowance is already being fully utilised, how much income tax, if any, will Sam pay on the new shares that he receives?

Select one:

a. £60.
b. £80.
c. £160.
d. Nil.

Answer 8

a. £60.

chapter reference 9B1B

Question 9

Victor, a UK investor, has money in a bank account in the Channel Islands. He has not agreed for the bank to disclose details of the account to HMRC. The consequences of this are likely to be that:

Select one:

a. he will be taxed at the higher rate regardless of his tax status.
b. withholding tax is deducted from interest payments.
c. the interest will escape tax if the money remains offshore for 7 years.
d. any tax deducted cannot be offset against UK tax liability.

Answer 9

b. withholding tax is deducted from interest payments.

chapter reference 9B1C

Question 10

If Josh transfers shares to his adult son what tax, if any, would always be payable on the shares that are transferred?

Select one:

a. Income tax.
b. Capital gains tax.
c. None.
d. Stamp duty reserve tax.

Answer 10

d. Stamp duty reserve tax.

chapter reference 9B3

Question 11

Sid, an additional-rate taxpayer, received £100 interest on his National Savings and Investments account. How much tax would be payable on the amount received by him?

Select one:

a. £45.
b. £40.
c. £25.
d. £20.

Answer 11

a. £45.

Correct, chapter reference 9A2A

Question 12

Saul is self-employed and a higher-rate taxpayer. He makes a profit of £15,000 from his buy-to-let properties. When preparing his accounts for the current tax year, what dates must be used and how much tax is due on these profits?

Select one:

a. £6,000 income tax for the period which must end 5 April or 31 March.
b. £2,850 corporation tax for the period which must end 5 April or 31 March.
c. £2,850 corporation tax for the period which must end 31 January or 6 April.
d. £6,000 income tax for the period which must end 6 April or 31 October.

Answer 12

a. £6,000 income tax for the period which must end 5 April or 31 March.

chapter reference 9C4

Question 13

Sue is aged 15 and Gabby is aged 16. They both wish to open a National Savings and Investments [NS&I] investment account. You advise their parents that:

Select one:

a. Sue and Gabby will both require someone eligible to open the account on their behalf.
b. both Sue and Gabby are too young to have an NS&I investment account in their names.
c. both Sue and Gabby can open the account themselves.
d. Sue will require someone eligible to open the account on her behalf for her whilst Gabby can open it herself.

Answer 13

d. Sue will require someone eligible to open the account on her behalf for her whilst Gabby can open it herself.

chapter reference 9A2A

Question 14

In 2021/22, Victoria has made gains of £20,000 on her share portfolio and £5,000 on some corporate bonds. She also made a loss on UK gilts of £4,000. As a higher-rate taxpayer, if she made no other gains or losses, what is her capital gains tax liability?

Select one:

a. £2,540.
b. £1,540.
c. £1,740.
d. £740.

Answer 14

b. £1,540.

chapter reference 9A3

Question 15

Rachel, an additional-rate taxpayer, receives £6,200 gross interest from her building society savings account. How much is she left with after paying the income tax due on this interest?

Select one:

a. £4,160.
b. £2,790.
c. £3,410.
d. £4,560.

Answer 15

c. £3,410.

chapter reference 9A1

Question 16

Aiden’s annual salary is £22,000 and he has savings interest of £1,274 in 2021/22. Assuming he has no other savings, the income tax due on this interest will be:

Select one:

a. £54.80.
b. £254.80.
c. Nil.
d. £127.40.

Answer 16

a. £54.80.

chapter reference 9A1

Question 17

With a National Savings and Investments income bond:

Select one:

a. the interest is paid gross but is taxable.
b. the rate of interest is fixed.
c. withdrawals are permitted up to £500 per year.
d. the maximum investment is £15,000 per person per bond.

Answer 17

a. the interest is paid gross but is taxable.

chapter reference 9A2C

Question 18

For ‘rent-a-room’ relief, the:

Select one:

a. space being let can be furnished or unfurnished.
b. property concerned must be in the UK.
c. space being let must be self-contained.
d. room may be let for residential or business purposes.

Answer 18

b. property concerned must be in the UK.

chapter reference 9C11

Question 19

Vanessa is considering investing her money in a local authority bond and wants to know more about them. Vanessa should be advised that:

Select one:

a. they cannot be bought and sold on the stock exchange.
b. interest is paid gross and is taxable as savings income.
c. gains are declared for capital gains tax purposes.
d. the maximum investment is £20,000 per person per bond.

Answer 19

b. interest is paid gross and is taxable as savings income.

chapter reference 9A3C

Question 20

Any expenditure on equipment used in commercial property in excess of the annual investment allowance is eligible for a writing-down allowance in the year of purchase at a rate of:

Select one:

a. 20%.
b. 15%.
c. 18%.
d. 10%.

Answer 20

c. 18%.

chapter reference 9C3A

Question 21

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. Desks and office equipment in an office above a shop.
b. Several new sewing machines in a textile factory.
c. A new toilet in an old school house rented to Scouts.
d. Tables and chairs in a restaurant.

Answer 21

c. A new toilet in an old school house rented to Scouts.

chapter reference 9C3A

Question 22

Under what circumstances might income received by a landlord from a letting be treated as trade income?

Select one:

a. Where the landlord also lives within the same premises.
b. Where the tenant has signed a formal tenancy agreement.
c. Where the landlord provides substantial services in connection with the letting.
d. Where the tenant is not connected in any way with the landlord.

Answer 22

c. Where the landlord provides substantial services in connection with the letting.

chapter reference 9C8

Question 23

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. £130.
b. £230.
c. £260.
d. £460.

Answer 23

c. £260.

chapter reference 9A1

Question 24

A 45 year lease is granted for a premium of £60,000. The income element that should be included in the property letting accounts is:

Select one:

a. £6,000.
b. £7,200.
c. £54,000.
d. £46,800.

Answer 24

b. £7,200.

chapter reference 9C6

Question 25

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 £2,925.
b. Shareholders are offered the option of receiving discounted prices 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 £2,275.
d. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,925.

Answer 25

c. 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

Question 26

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. £72.
b. £68.58.
c. £58.50.
d. £81.

Answer 26

b. £68.58.

chapter reference 9B1A

Question 27

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. be able to use any of her remaining dividend allowance against any income received.
b. have to set up a trust to hold the investment on her behalf.
c. be able to use any of her remaining personal savings allowance against any income received.
d. not need to pay capital gains tax personally as it is accounted for within the trust.

Answer 27

a. be able to use any of her remaining dividend allowance against any income received.

chapter reference 9B2

Question 28

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. an investment account.
b. a direct saver account.
c. direct ISAs.
d. income bonds.

Answer 28

c. direct ISAs.

chapter reference 9A2

Question 29

David, an additional-rate taxpayer, received a dividend of £2,684 on his share portfolio. This is his only equity investment. How much tax will he have to pay on this dividend payment?

Select one:

a. £260.60.
b. £307.80.
c. £1,207.80.
d. £1,022.60.

Answer 29

a. £260.60.

chapter reference 9B1A

Question 30

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 on a commercial basis.
b. not be subject to ‘long term lets’ for more than 155 days in a tax year.
c. be situated in an acknowledged holiday resort.
d. be let for at least 105 days in a tax year. This can be averaged with other properties.
e. be let to individuals who are on holiday only.
f. be situated in the UK only.

Answer 30

a. be let on a commercial basis
b. not be subject to ‘long term lets’ for more than 155 days in a tax year.
d. be let for at least 105 days in a tax year. This can be averaged with other properties.

Question 31

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. funds can be withdrawn at any time.
b. she is unable to invest in it as she is not the parent.
c. any interest will be tax free.
d. she can invest up to £1,000,000.

Answer 31

a. funds can be withdrawn at any time.
d. she can invest up to £1,000,000.

chapter reference 9A2A

Question 32

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. Harry will pay more than four times as much tax on his dividend compared to Dick.
b. all three of them will not have to pay any tax on their dividends.
c. all three of them will definitely have some sort of tax liability on their dividends.
d. Tom and Dick will pay the same amount of tax on the dividend.

Answer 32

a. Harry will pay more than four times as much tax on his dividend compared to Dick.

chapter reference 9B1A

Question 33

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. free of any UK tax.
b. with an accompanying 1/9 tax credit.
c. before the deduction of withholding tax.
d. after the deduction of withholding tax.

Answer 33

d. after the deduction of withholding tax.

chapter reference 9B1C

Question 34

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. both Glen and David will benefit from the £5,000 savings band.
b. David will have a tax liability of £280 on the interest.
c. Gary should complete an R85 form.
d. Gary and Glen will pay no tax on their interest.

Answer 34

b. David will have a tax liability of £280 on the interest.
d. Gary and Glen will pay no tax on their interest.

chapter reference 9A3A

Question 35

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 £1,560 if she opts for the normal basis.
b. £660 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.
c. £60 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.
d. £660 if she opts for the rent-a-room method and £1,560 if she opts for the normal basis.

Answer 35

c. £60 if she opts for the rent-a-room method and £1,400 if she opts for the normal basis.

chapter reference 9C11

Question 36

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. The cost of any alterations.
c. The legal fees for the eviction of bad tenants.
d. Premiums for insuring the property.
e. Interest payments on any loans to buy furnishings.
f. Any professional charges for rent collection.

Answer 36

c. The legal fees for the eviction of bad tenants.
d. Premiums for insuring the property.
e. Interest payments on any loans to buy furnishings.
f. Any professional charges for rent collection.

chapter reference 9C2

Question 37

Charlie owns a cottage in Devon and is considering letting this as a furnished holiday letting. For him to be eligible to receive the tax advantages associated with this:

You must select ALL the correct options to gain the mark:

a. the property cannot be let for periods of more than 31 days.
b. the tenants who rent the property do not have to be on holiday.
c. it must be available to let to the public for at least 155 days each year.
d. it must be let on a commercial basis.

Answer 37

b. the tenants who rent the property do not have to be on holiday.
d. it must be let on a commercial basis.

chapter reference 9C12

Question 38

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. Losses on the sale of shares can be offset against other capital gains tax liabilities.
b. Clive receives a tax credit in addition to his dividend.
c. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
d. If Clive is a basic-rate taxpayer he has no further tax liability in respect of the dividend income.
e. Capital gains tax may apply to any profit on the sale of the shares.

Answer 38

a. Losses on the sale of shares can be offset against other capital gains tax liabilities.
c. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
e. Capital gains tax may apply to any profit on the sale of the shares.

chapter reference 9B1