Income tax Flashcards
Sally has a holiday home in Cornwall that she is now considering letting out commercially. To gain certain tax advantage it must qualify as a ‘furnished holiday let’ which means that:
A: it must be in an acknowledged holiday resort
B: it must be available for commercial let for at least 210 days in total in a tax year
C: it must be actually let for at least 90 days in total in a tax year
D: the tenants occupying the property must be on holiday
B: it must be available for commercial let for at least 210 days in total in a tax year
One of the conditions is that it must be available for commercial let for at least 210 days in total in a tax year. There is no requirement for it to be in an acknowledged holiday resort nor must the tenants occupying the property actually be on holiday. The property must be actually let for at least 105 days in total in a tax year, not 95.
As a financial adviser, which of the following individuals would you advise if possible, to pay Class 3 National Insurance contributions? Tick all that apply
A: Jane, who took early retirement at 50 having established 32 years of NICs
B: Peter, aged 67, with an inadequate NICs record to qualify for a full State pension
C: Hayley, who is moving to Portugal for a year, after selling the UK based business she owned for 10 years
D: Mary, who has an incomplete NICs record after taking the last two years off to study
A: Jane, who took early retirement at 50 having established 32 years of NICs
C: Hayley, who is moving to Portugal for a year, after selling the UK based business she owned for 10 years
D: Mary, who has an incomplete NICs record after taking the last two years off to study
Jane needs a further 3 years of NICs to qualify for a full State pension. Peter cannot contribute further because he is over State pension age. Both Hayley and Mary should pay class 3 NICs to avoid gaps in their contribution records.
What happens to ‘excluded property’ trusts in the event of the settlor subsequently becoming UK domiciled?
A: The trust assets remain protected from Inheritance Tax
B: The trust becomes part of the settlor’s worldwide assets and is liable to IHT
C: The trust is subject to IHT, but relief given for the period the settlor was a non-UK domicile
D: If at least one of the trustees is UK resident, then the domicile status of the settlor has no effect
A: The trust assets remain protected from Inheritance Tax
Assets within an excluded property trust remain protected from Inheritance Tax in the event of a settlor subsequently becoming UK domiciled
Ruth borrowed £500,000 four years ago, which is charged on her house, but was used to buy shares in her daughter’s company. On Ruth’s death, the shares are worth £700,000 and the house is worth £900,000. Which of the following is correct in relation to the Inheritance Tax position?
A: Any business relief will be unaffected by the mortgage on Ruth’s property
B: The full value of the house will be included in Ruth’s death estate
C: The residence nil rate band will be unaffected by the mortgage on Ruth’s property
D: Ruth must have purchased at least 10% of the shares to be eligible for business relief
B: The full value of the house will be included in Ruth’s death estate
The full value of the house will be included in Ruth’s death estate because the mortgage will be set against the shares that qualify for business relief. Business relief is therefore affected by the mortgage. The RNRB is potentially reduced as the mortgage will be deducted from the property when working out the RNRB available. There is no size restriction for Ruth’s shareholding for business relief purposes.
Geri has recently invested £15,000 into each of the following investments: UK listed shares using stock transfer form, gilts and AIM shares. What amount of Stamp Duty Reserve Tax will Geri pay in total?
A: Nil
B: £75
C: £150
D: £225
A: Nil
Stamp Duty Reserve Tax (SDRT) is not payable on the purchase of gilts or AIM shares. Stamp Duty, rather than SDRT will be paid on shares where a stock transfer form has been used. Geri will therefore have no SDRT to pay.
Tom is a trustee of the Davies family Interest in Possession trust. What rate of Income Tax will he be liable for, as trustee, on savings income?
A: 20%
B: 37.5%
C: 40%
D: 45%
A: 20%
Trustees of interest in possession trusts pay Income Tax at the basic rate. Savings income is therefore subject to tax at 20%.
Anna is the trustee of an Accumulation and Maintenance trust set up in 2005, the terms of which have not been charged in any way. Anna should be aware that if capital passes to the beneficiary. Tick all that apply.
A: after age 25, it is treated as a relevant property trust with periodic and exit charges being payable after their 18th birthday
B: after age 25, it is treated as a relevant property trust with periodic and exit charges being payable after 5 April 2008
C: on or before age 25, there is an exit charge based on the length of time since the last periodic charge
D: on or before age 25, there is an exit charge based on the length of time since their 18th birthday
B: after age 25, it is treated as a relevant property trust with periodic and exit charges being payable after 5 April 2008
D: on or before age 25, there is an exit charge based on the length of time since their 18th birthday
Where an A&M trust has not been varied, then if capital passes to the beneficiary after age 25, it is treated as a relevant property trust with periodic and exit charges being payable after 5 April 2008. If capital passes to the beneficiary on or before age 25, there is an exit charge based on the length of time since their 18th birthday, but no periodic charges apply.
Kayleigh, an additional-rate taxpayer, Jo a higher-rate taxpayer and Edna, a non-taxpayer, have all received a £1,000 interest distribution from their unit trust investment. None of them has nay other savings or dividend income. With regards to these payments, which of the following statements are true? Tick all that apply
A: Only Kayleigh will pay tax on the full £1,000
B: Only Edna can arrange to have her distribution paid gross
C: Any unused dividend allowance can be offset against the payment
D: Jo’s tax bill will be £200, whereas Kayleigh’s will be £450
A: Only Kayleigh will pay tax on the full £1,000
D: Jo’s tax bill will be £200, whereas Kayleigh’s will be £450.
Only Kayleigh will pay tax on the full £1,000 because she does not benefit from a personal savings allowance (PSA). Jo will get a £500 PSA and Edna is a non-taxpayer so does not pay tax anyway. Everyone will receive their distribution gross, not just Edna. It is the PSA, not the dividend allowance, that is available on interest distributions from unit trusts. Jo’s tax bill is £1,000 - £500 PSA = £500 @ 40% = £200. Kayleigh’s is £1,000 @ 45% = £450.
Julie bought a ring for £1,000 over 10 years ago and has recently sold it for £8,000. What is the chargeable gain for Capital Gains Tax purposes?
A: £8,000
B: £7,000
C: £3,333
D: £2,000
C: £3,333
- chattel rule applies
As Julie’s ring was sold for £8,000 the chattels rule applies. The chargeable gain for CGT purposes cannot exceed five-thirds of the excess over £6,000. £8,000 - £6,000 = £2,000. £2,000 x 5/3 = £3,333.33. The actual gain of £7,000 is therefore ignored because this is higher.
Which of the following could potentially be a taxable benefit for an employee?
A: Workplace charging of electric vehicles
B: Subsidies to public bus services
C: Provision of light refreshments, such as tea and coffee
D: A £10 weekly allowance for someone who works from home
D: A £10 weekly allowance for someone who works from home
Workplace charging of electric vehicles, subsidies to public bus services and the provision of light refreshments are all examples of benefits that are usually exempt. The weekly allowance for someone who works from home is £6, so an amount above this is potentially taxable.
Fred and Nancy have a Child Trust Fund for their 11-year-old daughter as well as holding a Cash ISA and a Stocks and Shares ISA. They are looking around for better providers and have asked you for advice as to the type of transfer they can do. It is correct to say that the transfer they could not do is the:
A: Child Trust Fund to a Cash ISA
B: Child Trust Fund to a Junior ISA
C: Stocks & Shares ISA to a Cash ISA
D: Cash ISA to another Cash ISA
A: Child Trust Fund to a Cash ISA
Savings in a Child Trust Fund can be transferred to a Junior ISA, but not a cash ISA. Both stocks & shares and cash ISAs can be transferred to other cash ISAs
On Martine’s death, her estate was left in equal shares to her husband, her brother, and the charity, the British Red Cross. Included in her estate were AIM shares that she had held for over ten years. When determining whether the reduced IHT rate of 36% applies, her net estate is that remaining after deducting
A: business relief, the charitable legacy, and the nil rate band
B: business relief, the nil rate band, and the residence nil rate band
C: the spouse exemption, business relief, and the nil rate band
D: the spouse exemption, business relief, the nil rate and residence nil rate band
C: the spouse exemption, business relief, and the nil rate band
A reduced IHT rate of 36% applies where at least 10% of the net estate is left to charity. The net estate is that remaining after deducting exemptions (but excluding the charitable legacy), reliefs and the nil rate band (but not the residence nil rate band). The correct answer is therefore the spouse exemption (for the share of the estate left to the husband), business relief (for the AIM shares) and the nil rate band.
In 2022/23, Suki’s business struggled, making a loss of £2,500. In 2023/24, the business bounced back, and she made a profit of £26,000. What profit figures will be used for Income Tax and class 4 National Insurance contributions in respect of 2023/24?
A: £23,500 for Income Tax and class 4 NIC purposes
B: £23,500 for Income Tax and £26,000 for class 4 NIC purposes
C: £26,000 for Income Tax and £23,500 for class 4 NIC purposes
D: £26,000 for Income Tax and class 4 NIC purposes
C: £26,000 for Income Tax and £23,500 for class 4 NIC purposes
Suki’s loss of £2,500 can be relieved against her other income in 2022/23. The full £26,000 is therefore chargeable to Income Tax in 2023/24. The loss can, however, be carried forward to set against future trading profits for class 4 NICs, meaning that £23,500 is the profit figure to be used for NICs
Which of the following actions would HM Revenue & Customs most likely take into account when assessing if someone has acquired a new domicile status? Tick all that apply
A: Sally sells her Kensington flat to buy a new home for her and her family in Madrid
B: Evan is travelling around America for 12 months and will then return to the UK
C: Ross let out his property as he is spending an increasing amount of time in Sweden with his new girlfriend
D: Poppy’s Australian business is flourishing so she has sold her UK home and bought an apartment in Sydney and told everyone she is emigrating
A: Sally sells her Kensington flat to buy a new home for her and her family in Madrid
D: Poppy’s Australian business is flourishing so she has sold her UK home and bought an apartment in Sydney and told everyone she is emigrating
To acquire a new domicile status, the individual needs to break all their ties with the UK and put roots down in the new country. Sally selling her UK property and buying a new one in Madrid with her family should meet these criteria, as should Poppy’s actions. Evan clearly has no intention of leaving the UK permanently and by only letting out his property Ross has retained a significant tie to the UK.
As an adviser, you have been asked to explain the Capital Gains Tax implications for trustees of a bare trust. You explain that: Tick all that apply
A: the trustees will be liable to CGT at a rate of 10%
B: any chargeable gains are usually treated as the beneficiary’s
C: the trustees will have a standard rate band of £1,000 to offset against gains
D: the beneficiary is liable for any CGT and can use their full annual exempt amount
B: any chargeable gains are usually treated as the beneficiary’s
D: the beneficiary is liable for any CGT and can use their full annual exempt amount
Chargeable gains are usually treated as the beneficiary’s. They are liable for any CGT and can use their full annual exempt amount. The trustees will therefore not be liable to CGT. The £1,000 standard rate band relates to Income Tax and discretionary trusts, not to CGT and bare trusts.
In which of the following scenarios has a chargeable disposal for Capital Gains Tax purposes occurred?
A: Patrick makes a gain of £75,000 having sold the flat where he lived
B: Mhairi wins £1.2m on the Euromillions
C: Ted gifts a portfolio of shares to his nephew
D: Clara sells her portfolio of gilts via an online stockbroker
C: Ted gifts a portfolio of shares to his nephew
Only Ted’s gift is chargeable. The rest of the disposals are exempt under the CGT rules
Rhiannon and Vera exchanged their houses in December 2023 with no cash payment as both houses were worth £300,000. What, if any, Stamp Duty Land Tas is payable?
A: Neither is liable for SDLT as no money has changed hands
B: Both would be liable for SDLT of £2,500 each
C: Neither is liable for SDLT as it is not a commercial transaction
D: They would have a joint liability to SDLT of £2,500
B: Both would be liable for SDLT of £2,500 each
When houses are exchanged, each person pays SDLT on the market value of the property they have acquired. In this instance, the SDLT would be £300,000 - 250,000 = £50,000 @ 5% = £2,500 each.
In the current tax year, Kiera has received £15,000 in earnings, drawn down £7,500 of income form her personal pension and received £6,500 interest form a purchased life annuity. What is Keira’s total Income Tax liability?
A: £3,611
B: £3,411
C: £1,986
D: £1,786
D: £1,786
The earnings and pension income can be added together to give £22,500 non-savings income. From this, we can deduct the personal allowance of £12,570, leaving £9,930 taxable at the basic rate of 20% = £1,986.
The interest from the PLA will be paid net, so we need to gross that up - £6,500 / 0.8 = £8,125. From this, we can deduct the £1,000 personal savings allowance for a basic-rate taxpayer. £7,125 is then charged to tax at 20% = £1,425.
This gives us a tax bill of £1,986 + £1,425 = £3,411.
From this, we can deduct the Income Tax taken from the PLA at source - £3,411 – (£8,125 - £6,500) = £1,786
In the current tax year, Fee has married and become self-employed. She is aware that she will probably have to pay National Insurance contributions but wants more information. You tell her that
A: she will only need to pay class 4 contributions if her profits exceed the small profits threshold
B: as she is married, she does not need to pay class 2 contributions and pays a reduced rate of class 4 contributions
C: Class 4 contributions are based on profits after adjusting for capital allowances and trading losses brought forward
D: personal allowances and pension contributions are deducted for class 4 NIC purposes
C: Class 4 contributions are based on profits after adjusting for capital allowances and trading losses brought forward
It is class 2 contributions that are determined by the small profits threshold, for class 4 it’s the lower annual limit. Reduced rates are not available for the recently married. Neither personal allowances nor pension contributions are deducted for class 4 NIC purposes. Class 4 contributions are, however, based on profits after adjusting for capital allowances and trading losses brought forward.
Miriam has worked in the same company for 15 years and has recently been asked by them to relocate to London to take up a new role. They have offered to reimburse relocation and removal expenses of £10,000. How will Miriam be taxed on this payment?
A: £2,000 will be tax free and £8,000 will be taxable
B: £8,000 will be tax free and £2,000 will be taxable
C: £5,000 will be tax free and £5,000 will be taxable
D: The whole £10,000 will be tax free
B: £8,000 will be tax free and £2,00 will be taxable
Relocation and removal expenses are tax-free up to £8,000. Of Miriam’s £10,000 expenses, £8,000 will therefore be tax-free and £2,000 will be taxable as employment income.
Izzy is a higher-rate taxpayer. She is beneficiary under a discretionary trust and has received a net income from the trust of £2,000. Which of the following is correct regarding this income?
A: Izzy is deemed to have received gross income of £2,500
B: The settlor of the trust will pay any further tax due on Izzy’s behalf
C: Izzy has a further liability of 20%, which she must pay via self-assessment
D: Izzy has no further liability, and she can reclaim some of the tax paid
D: Izzy has no further liability, and she can reclaim some of the tax paid
A discretionary trust is deemed to pay out income net of tax deducted at source of 45%. To work out the gross income we divide £2,000 by 0.55 = £3,636.36. As a higher-rate taxpayer Izzy can reclaim the difference between the 45% deducted at source and the higher rate of 40%, i.e., she can potentially re-claim 5%.
Ali has purchased a holding of gilts and his partner Chris has bought local authority bonds. Ali wants to know how his investment differs from Chris’s. You can tell him that
A: only Chris can trade his investment on the London Stock Exchange
B: only Ali’s investment is exempt from Capital Gains Tax
C: Ali has effectively lent his money to the Government
D: Chris can offset any losses against other capital gains
C: Ali has effectively lent his money to the Government
Gilts are loans to the Government, whilst local authority bonds are loans to local government authorities. Both products can be traded on the stock exchange, and both are exempt from CGT. Neither Ali nor Chris can offset losses against other gains
Sue is a basic-rate taxpayer and David is a higher-rate taxpayer. They have recently invested in following:
Sue - Venture Capital Trust - Investment £50,000 and current value £60,000
David - Enterprise Investment Scheme - Investment £50,000 - current value £29,000
From this information, you can advise Sue and David that:
A: Sue received more tax relief on her investment than David
B: only the dividends on David’s investment are tax free up to £200,000
C: only David could have deferred capital gains by reinvesting in EIS shares
D: Sue must retain her shares for vie years to enjoy Capital Gains Tax exemption
C: only David could have deferred capital gains by reinvesting in EIS shares
Capital Gains Tax deferral is available with Dave’s EIS but not with Sue’s VCT. The Income Tax relief for both the EIS and VCT is 30%. Tax-free dividends are available on Sue’s VCT, but not Dave’s EIS. There is no time limit on VCT shares for them to be exempt from CGT
When considering the use of the residence nil rate band for Inheritance Tax purposes, individual should be aware that it
A: is not available against lifetime transfers becoming chargeable as a result of the donor’s death within seven years
B: is only available if the second death occurred after 2007
C: can be deducted from the net estate when determining whether the 36% IHT rate applies
D: is usually available where property is left to an interest in possession or to a discretionary trust
A: is not available against lifetime transfers becoming chargeable as a result of the donor’s death within seven years
It is not available against lifetime transfers becoming chargeable as a result of the donor’s death within seven years. It is only available if the second death occurred on or after 6 April 2017. It cannot be deducted from the net estate when determining whether the 36% IHT rate applies. While it is usually available where property is left to an interest in possession trust, it is not usually available to discretionary trusts.
On Sarah’s death, the nil rate band was £300,000. In her will, she left £70,000 in trust for her nephews and the remainder of her estate of just under £1m to her husband James. Two years prior to her death, she had made an outright gift of £56,000 to her niece. On James’s death, his estate was valued at £2.2m, including the family home valued at £575,000. There was no mortgage. His estate was left to the couple’s two children. James had made no lifetime gifts. what is the IHT liability on James’s estate?
A: £520,000
B: £523,000
C: £572,000
D: £574,600
C: £572,000
On Sarah’s death 40% (£120,000/£300,000) of her NRB was used (£120,000 being the £70,000 left in her will, plus the £50,000 gift after 2 x annual exemptions made to her niece), leaving 60% of the NRB in place at the date of James’s death available to James’s estate (£325,000 @ 60% = £195,000). 2 x RNRB are also available, 2 x £175,000 = £350,000. However, as James’s estate is in excess of £2m we need to reduce the RNRB by £1 for every £2 over. £2.2m - £2m = £200,000 / 2 = £100,000. £350,000 - £100,000 = £250,000. IHT is therefore due on £2,200,000 - £195,000 - £325,000 - £250,000 = £1,430,000 @ 40% = £572,000.
Maggie and Jong are reviewing their wills and contemplating including a trust for ‘bereaved minors’ as they have two young children. They should be aware that these types of trust
A: are subject to an exit charge at age 18
B: are subject to a 10-yearly periodic charge
C: must give an absolute interest at age 18
D: must give an interest in possession at age 18
C: must give an absolute interest age 18
A trust for a bereaved minor must give an absolute interest in the trust property at the age of 18. This means that if the trust comes into effect as a result of their deaths, their daughters will have full access to the trust property once they turn 18.
The Edwards family’s interest in possession trust has received rental income, savings income, and dividend income in the current tax year. It has also incurred trustee expenses in managing the trust. It is therefore true to say that
A: the trustees will be entitled to tax relief for the expenses of managing the trust
B: some of the income will be taxed at 8.75% and some of it at 20%
C: trust expenses will be set first against the rental income before being paid to the beneficiary
D: the trustees will be able to claim both the personal savings and dividend allowances
B: some of the income will be taxed at 8.75% and some of it at 20%
. Trustees of interest in possession trusts pay Income Tax at the basic rate. Rental and savings income is therefore subject to tax at 20%, and dividend income is subject to tax at 8.75%. The trustees are not entitled to tax relief for the expenses of managing the trust. Trust expenses reduce the income paid to a beneficiary and are set against income in a particular order; the correct order is dividends first, then savings income and then other income. The trustees are not entitled to use the personal savings or dividend allowances
Joshua has earnings in this tax year of £115,000. What is his total liability to Income Tax?
A: £33,432
B: £36,432
C: £38,460
D: £46,000
B: £36,432
Joshua will lose some of his personal allowance due to his income being in excess of £100,000. It is reduced by £1 for every £2 over. £115,000 - £100,000 = £15,000 / 2 = £7,500. £12,570 - £7,500 = £5,070. £115,000 - £5,070 = £109,930. £37,700 is taxable at the basic rate @ 20% = £7,540. £109,930 - £37,700 = £72,230 is taxable at the higher rate @ 40% = £28,892. £7,540 + £28,892 = £36,432. -
A company pays a basic-rate taxpaying director a dividend. What is the tax liability for both the company and the director?
A: There is no tax implication for the company, and the director receives the income with a 10% tax credit which satisfies his liability
B: The company is liable to Corporation Tax on the dividend payment, and the director is liable to Income Tax at 8.75% if it is in excess of their dividend allowance
C: There is no tax implication for the company, the director receives the income gross and is liable to tax at 8.75% if it is in excess of their dividend allowance
D: The company claims the dividend payment as an expense and the dividend is taxed at 8.75%
C: There is no tax implication for the company, the director receives the income gross and is liable to tax at 8.75% if it is in excess of their dividend allowance
While there are no tax implications for the company, the director will need to pay tax at the basic rate of 8.75% once the dividends exceed the dividend allowance of £1,000.
When considering the interaction between Capital Gains Tax and Inheritance Tax, we can say that
A: for CGT, it is the asset that is valued, whereas for IHT it is the loss to the estate
B: a CGT disposal cannot also be a transfer of value for IHT purposes
C: if a disposal attracts an immediate charge to IHT, reinvestment relief can generally be claimed
D: an IHT liability can be deducted from a capital gain, provided it is paid by the donee
A: for CGT, it is the asset that is valued, whereas for IHT it is the loss to the estate
For CGT, it is the asset that is valued, whereas for IHT it is the loss to the estate. A CGT disposal can be a transfer of value for IHT purposes. Holdover relief, rather than reinvestment relief, can generally be claimed if a disposal attracts an immediate charge to IHT. An IHT liability can be deducted from a capital gain, provided the donor (rather than the donee) pays it.
Ellen is considering investing in property. She wishes to invest indirectly, rather than directly and so should therefore avoid
A: investing in a property unit trust
B: purchasing a real estate investment trust
C: purchasing a furnished holiday let
D: investing in listed property company shares
C: purchasing a furnished holiday let
Out of the options shown, all are examples of ways in which Ellen could invest indirectly in property apart from purchasing a holiday home which would be a direct investment.
John and Sue are both aged 90 and married. John is concerned that he will lose some of their married couple’s allowance as his pension income will exceed £34,600 this tax year. What measures could John take to ensure this doesn’t happen? Tick all that apply
A: Use the gift out of normal expenditure rule
B: Transfer income producing assets to Sue
C: Make a gross pension contribution
D: Switch investments from income to growth funds
B: Transfer income producing assets to Sue
D: Switch investments from income to growth funds
John needs to reduce his income. Transferring income-producing assets to Sue and switching investments from income to growth funds will achieve this. The gift out of normal expenditure rule relates to IHT and John is too old to receive tax relief on his pension contributions.
In assessing if Jamie is employed or self-employed, which of the following might generally indicate that she is self-employed?
A: She has a long engagement working for the same person
B: Her contract is to provide services
C: She expects to be shown how to perform new tasks
D: During her working hours she is closely supervised
B: Her contract is to provide services
Having a contract to provide services (rather than a contract of service) is a sign of self-employment. The other options are all indicators of employment.
Hettie, age 68, has recently retired. She has designated her pension fund into flexi-access drawdown and takes £15,000 a year as income. She is basic-rate taxpayer. She should be aware that (Tick all that apply)
A: the future level of her annual allowance is reduced to £10,000
B: she may no longer make pension contributions
C: if she dies after age 75, her entire fund will be subject to Income Tax at the basic rate
D: death benefits are tax free before age 75 if they are paid or designated within two years
A: the future level of her annual allowance is reduced to £10,000
D: death benefits are tax free before age 75 if they are paid or designated within two years
As she has entered drawdown, Hettie is now subject to the money purchase annual allowance of £10,000. She can, however, still make contributions up to this amount. If she dies after 75, her fund will be subject to Income Tax at the recipient’s rate. Death benefits are tax free before age 75 if they are paid or designated within 2 years.
Joanne sold an investment property to her sister at its market value of £120,000 making a gain of £40,000. She has allowed her sister two years to pay for the house. When would Joanne be liable to pay any Capital Gains Tax?
A: Joanne must pay any CGT based on the contract date
B: Joanne must pay any CGT when she receives the money from her sister
C: There would be no CGT liability as Joanne has sold to a close relative
D: Joanne must pay any CGT based on the contract date but can pay in instalments
D: Joanne must pay any CGT based on the contract date but can pay in instalments
In this case, as the deferred consideration is payable more than 18 months after the disposal, HMRC will usually agree to the tax being paid in instalments. Joanne must, however, still pay any CGT based on the contract date
Julian has an estate valued at £3,000,000. He regularly uses his annual exemption for Inheritance Tax and is now considering making an outright gift to his son of £500,000. Julian should be aware that
A: the transfer will be immediately charged to IHT at 20% over the nil rate band
B: if he survives making the gift by at least three years there will be a reduction in any IHT payable
C: if the gift to his son becomes chargeable, his legal personal representatives will be liable for any IHT due
D: he must report the amount of the gift to HM Revenue & Customs within six months of making it
B: if he survives making the gift by at least three years there will be a reduction in any IHT payable
If Julian survives at least three years after making the gift, taper relief will mean a reduced percentage of the full death rate is used. There will be no immediate charge to tax as the gift will be classed as a potentially exempt transfer (PET). Julian’s son will be liable, in the first instance, for any IHT due. There is no need to report a PET to HMRC, although it is a good idea to keep a personal record.
Stan transferred an onshore investment bond into a discretionary trust for the benefit of his young grandchildren. He has recently died, and the trustees are planning on surrendering the bond to distribute the proceeds to the beneficiaries. They should be aware that: (Tick all that apply)
A: if the surrender occurs in the same tax year as Stan died then any gain is treated as part of Stan’s income
B: if the surrender occurs in the tax year after Stan has died then an chargeable gain escapes tax
C: any potential tax charge may be avoided if the bond is assigned to non-taxpaying beneficiaries for them to trigger the chargeable event
D: the surrender of the bond will trigger a Capital Gain Tax liability and any tax will be paid by the trustees
A: if the surrender occurs in the same tax year as Stan died then any gain is treated as part of Stan’s income
C: any potential tax charge may be avoided if the bond is assigned to non-taxpaying beneficiaries for them to trigger the chargeable event
If a chargeable gain occurred in the tax year of Stan’s death, it would be taxed as Stan’s income. By assigning the bond to a non-taxpaying beneficiary and having the beneficiary then surrender the bond will mean no further tax is payable (providing the beneficiary remains under the higher rate tax threshold after the gain is added to their income). There is no escaping tax if the surrender occurs in the tax year after Stan has died as it will then fall on any UK trustees and, failing that, on any UK beneficiaries. A surrender will trigger an Income Tax liability, rather than a Capital Gains Tax liability.
Bill and Ben are brothers and jointly own an investment bond. A chargeable event has occurred resulting in a gain of £10,000. How is this apportioned between Bill and Ben?
A: The gain is split in the same proportion as their ownership
B: If Ben caused the chargeable event through a part surrender, he would be liable
C: The gain is always split 50/50 on a joint investment bond
D: The gain is held over until total encashment of the bond
A: The gain is split in the same proportion as their ownership
Where a policy is jointly owned, the gain is split in the same proportion as the ownership and each owner is taxable on their share of the gain. Bill and Ben will therefore share the gain in the same proportion as their ownership.
Jamie is considering selling his business but is concerned about the potential Capital Gains Tax liability. You explain to him that he can claim business asset disposal relief as long as:
A: he has owned the business for at least two years prior to selling
B: as shareholder, he holds at least 10% of the voting rights
C: he has made taxable profits in excess of £500,000 for three consecutive tax years
D: he hasn’t exceeded the lifetime limit of £5m of gains that qualify
A: he has owned the business for at least two years prior to selling
Business asset disposal relief can be claimed as long as Jamie has owned the business for at least two years prior to selling. He only needs to hold 5% of the voting rights and the lifetime limit is £1m
Under the rules used for calculating Capital Gain Tax on shares, an adviser should be aware that (Tick all that apply)
A: there is no extra acquisition cost on a bonus issue of shares of the same class as an existing holding
B: there is no extra acquisition cost where an existing shareholder takes up a rights issue
C: bonus shares are treated as being acquired on the date they are issued
D: scrip dividends ( stock dividends) are treated as new acquisitions
A: there is no extra acquisition cost on a bonus issue of shares of the same class as an existing holding
D: scrip dividends (stock dividends) are treated as new acquisitions
While there is no extra acquisition cost on a bonus issue of shares of the same class on an existing holding, there is one in relation to rights issues. Bonus shares are treated as being acquired on the same date as the original shares, rather than on the date the bonus shares are issued. Scrip dividends are treated as new acquisitions
Kath, age 22, is an apprentice tailor, paid weekly. In the tax year 2023/24, she receives a salary of £26,000. She also has a beneficial loan with a taxable value of £1,500. What is the employer’s liability to annual National Insurance contribution in respect of Kath?
A: £0
B: £207.00
C: £1,853.34
D: £2,060.34
B: £207.00
Employers ordinarily pay class 1 National Insurance contributions (NICs) on employees’ earnings and class 1A contributions on the taxable value of non-payrolled benefits. However, because Kath is an apprentice aged under 25, her employer does not pay NICs on her earnings under the apprentice upper secondary threshold (AUST) of £967. Class 1A is due on the taxable value of the beneficial loan. £1,500 x 13.8% = £207.
Charles, a higher-rate taxpayer, made a gross pension contribution of £15,000 in 2021/22 and £20,000 in 2022/23, ( he didn’t make any contribution in 2020/21 as he was not a member of any pension scheme). What is the maximum pension contribution he can make in 2023/24, assuming he is not subject to tapering?
A: £85,000
B: £105,000
C: £125,000
D: £135,000
B: £105,000
The annual allowance is £60,000 in the current tax year, but for the last three tax years was £40,000. Unused allowance can be carried forward for up to three tax years. Charles has £40,000 - £15,000 = £25,000 unused allowance that he can carry forward from 2021/22. He has £40,000 - £20,000 = £20,000 that he can carry forward from 2022/23. This gives him a total of £25,000 + £20,000 + £60,000 (his allowance for 2023/24) = £105,000 as the maximum pension contribution he can make in 2023/24.
When determining the tax due on an investment bond, which of the following will be ignored when calculating the taxable income for the year and identifying the tax band the gain falls in?
A: The personal savings allowance
B: The starting rate for savings income
C: Gift aid donations
D: Personal pension contributions
C: Gift aid donations
When calculating the taxable income for the year and identifying how much of the gain falls within the tax bands, gift aid donations are ignored, i.e., they do not extend the basic or higher tax bands for this calculation. Personal pension contributions still extend the bands in the normal way. The calculation takes into account both the starting rate for savings income and the personal savings allowance.
Erica is considering Inheritance Tax mitigation and wonders whether trusts may help with her planning. She should be aware that a transfer into: (Tick all that apply)
A: an interest in possession trust is a potentially exempt transfer
B: a disabled trust is a chargeable lifetime transfer
C: a bare trust is a potentially exempt transfer
D: a discretionary trust could trigger a 20% tax charge
C: a bare trust is a potentially exempt transfer
D: a discretionary trust could trigger a 20% tax charge
A transfer into both a bare trust and a trust for disabled beneficiaries is a potentially exempt transfer (PET). A transfer into an interest in possession trust and a discretionary trust is a chargeable lifetime transfer (CLT). A transfer into a discretionary trust could therefore trigger an immediate charge to IHT of 20% in excess of the available nil rate band.
Harold has recently registered for Value Added Tax. He should be aware that
A: if his business makes zero-rated supplies, he may not reclaim input VAT on standard-rated supplies made to it
B: zero-rated supplies are exempt from VAT, so no charge is made on such supplies
C: a partially exempt business will generally not be able to recover input tax that relates to its exempt supplies
D: reduced-rate supplies are charged at the 7.5% reduced rate of VAT
C: a partially exempt business will generally not be able to recover input tax that relates to its exempt supplies
A partially exempt business will generally not be able to recover input tax that relates to its exempt supplies. If a business makes zero-rated supplies, it may reclaim input VAT on standard-rated supplies made to it. Zero-rated supplies are not exempt from VAT - VAT is charged on them at 0%. Reduced-rate supplies are charged at the 5% reduced rate of VAT
Paula has recently died. In her will, she left bequest to her civil partner, her favourite charity, and to her nieces and nephews. Who is responsible for the payment of any Inheritance Tax due on her estate?
A: Paula’s legal personal representatives and the charity
B: The charity and Paula’s civil partner
C: The beneficiaries on Paula’s will only
D: Paula’s legal personal representatives only
D: Paula’s legal personal representatives only
IHT payable on the estate of a deceased person is the liability of their legal personal representatives.
Which of the following benefits is either wholly or largely exempt from Income Tax for an employee?
A: Accommodation where the employee pays a low rent
B: A company car that runs on diesel
C: Premiums paid for Private Medical Insurance
D: An award of £1,000 for 25 years’ service
D: An award of £1,000 for 25 years’ service
An award of £50 for every year’s service can be made tax-free under a long service award (20 years or more). 25 x £50 = £1,250 so the £1,000 award is wholly exempt from Income Tax. The other benefits listed are all taxable
Kim is an additional-rate taxpayer and has recently created a trust for her 10-year-old daughter Amelia. This produces £150 in gross interest. What is the Income Tax liability, if any?
A: Nil
B: £30.50
C: £60.00
D: £67.50
D: £67.50
Where a parent gifts money to a child, either directly or under trust, and that money produces an income in excess of £100, the income will be charged to tax at the parent’s rates. As Kim is an additional-rate taxpayer, the interest will be charged to tax at 45%. £150 @ 45% = £67.50.
Arthur, a sole trader, is about to retire and is selling his Edinburgh office premises. He purchased office on 1 April 2016. Which of the following is allowed as a deduction when calculating Capital Gains Tas?
A: Land Transaction Tax
B: The cost of repairs to the roof following a recent storm
C: Indexation allowance calculated up to December 2017
D: Estate agents’ fees
D: Estate agents’ fees
Incidental costs of purchase and sale are deductible, this includes estate agents’ fees. Land Transaction Tax applies to Wales, rather than Scotland. Repairs are not allowed (although enhancements are). Only companies, but not individuals (which includes sole traders) may deduct indexation allowance calculated up to December 2017
Sally wishes to ensure that the money she gifts to her 16-year-old child does not result in an Income Tax charge for herself. She should therefore avoid investing funds for her child in a
A: Junior cash ISA
B: cash ISA
C: stocks and shares Child Trust Fund
D: stocks and shares Junior ISA
B: cash ISA
The special provision to tax the parent on income derived from an asset that the parent has given a child does not apply to Junior ISAs or Child Trust Funds. It does, however, extend to ISAs held by 16- and 17-year-olds.
James incurs the following expense on his rental property. Which of the following is an allowable expense against his rental income?
A: Plumber’s charge to repair the shower
B: Capital repayments on his mortgage payments
C: An extension to the side of the house
D: An upgraded kitchen and bathroom
A: Plumber’s charge to repair the shower
Only ongoing expenses are allowable against rental income. So, while the plumber’s repair charge is permissible, the others are all examples of enhancement costs and are therefore not allowable.
Which of the following can be an effective strategy for reducing a company director’s liability to National Insurance contributions?
A: Sacrificing salary to increase the amount the company pays to company pension schemes
B: Giving up their company car
C: Arranging for their salary to be paid in ad-hoc lump sums rather than a monthly or weekly basis
D: Increasing their contributions into a personal pension
A: Sacrificing salary to increase the amount the company pays to company pension schemes
Sacrificing salary to increase the amount the company pays to a company pension scheme is an effective NIC planning strategy as it reduces the amount of income the director receives and ultimately pays NICs on. Giving up their company car will not be effective as employees do not pay NICs on taxable employee benefits. Directors are assessed for NIC purposes on an annual basis, so being paid in ad-hoc lump sums makes no difference to the amount of NICs they pay. Finally, personal pension contributions are paid from net income (i.e. after Income Tax and NICs have been paid) and therefore do not reduce NICs
Simon makes payments to his occupational pension scheme by deduction from his pay. What is this method known as?
A: Net pay arrangement
B: Relief at source
C: Gross pay arrangement
D: Relief by claim
A: Net pay arrangement
Employee contributions to occupational schemes are usually deducted before calculating tax under the net pay arrangement.
James is a non-UK domicile and his wife June is UK domiciled. James is considering making an election to become UK domiciled for Inheritance Tax purposes. This is most likely because he wants to:
A: be able to use the full spouse exemption
B: avoid Inheritance Tax on his worldwide property
C: backdate the use of the wedding exemption
D: ensure both can use their available nil rate bands
A: be able to use the full spouse exemption
Where a spouse is domiciled outside the UK, their spousal exemption is limited to £325,000. If James were to make an election to become UK domiciled, he would have an unlimited spousal exemption.
Charlie sets up a discretionary trust in this tax year for his grandchildren for £425,000. He has already used his annual exemptions. How much Inheritance Tax will be payable assuming Charlie pays it when he sets up the trust?
A: £40,000
B: £25,000
C: £20,000
D: £10,000
B: £25,000
Where the settlor pays the immediate charge to IHT, the CLT has to be grossed up. For a net gift of £425,000 the tax is calculated as ¼ of the excess over the nil rate band. £425,000 - £325,000 = £100,000. £100,000 x ¼ = £25,000. An alternative way of looking at this is to charge the excess at 25% rather than the 20% that would apply if the trustees paid the bill.
When considering investing in a Venture Capital Trust, investors should be aware that: Tick all that apply
A: Income Tax relief is withdrawn if the shares are disposed of within six years
B: the company must not be a close company
C: it must be a listed company
D: the disposal of VCT shares are potentially liable to Capital Gains Tax at 10%
B: the company must not be a close company
C: it must be a listed company
Income Tax relief is clawed back if the shares are sold within five years, rather than six. The company itself must not be a close company and must be listed. The disposal of VCT shares is exempt from CGT.
On Alan’s death, he left an estate valued at £875,000. This included a main residence worth £350,000 and AIM shares valued at £200,000 that he had owned for over five years. In his will, Alan left £50,000 to the British Heart Foundation. The remainder of his estate was divided equally between his two daughters. Alan had never been married and had made no lifetime gifts. What is the amount of IHT payable on Alan’s estate?
A: £130,000
B: £117,000
C: £50,000
D: £45,000
D: £45,000
Alan’s chargeable estate is £875,000 less the exempt gift to charity of £50,000 = £825,000. £200,000 AIM shares receive 100% business relief as they have been held for over 2 years. £325,000 is exempt under the nil rate band. £175,000 is exempt under the residence nil rate band.
The net estate for establishing whether the 36% rate applies is £875,000 - £200,000 (AIM shares) - £325,000 (NRB) = £350,000. The 10% threshold is therefore £35,000. As the charitable bequest is £50,000, the 36% rate applies to the remaining estate of £875,000 - £50,000 - £200,000 - £325,000 - £175,000 = £125,000 @ 36% = £45,000.
Halle is the sole shareholder of an unlisted company that designs and manufactures packaging materials. She wishes to gift 10% of her shares to her son Josh. What is a necessary condition for the disposal to qualify for holdover relief?
A: The transfer must be chargeable to Inheritance Tax
B: Halle must remain the majority shareholder until Josh sells his shares
C: Both Halle and Josh need to claim it
D: Halle must pay an Capital Gain Tax due by 31 January following the end of the tax year
C: Both Halle and Josh need to claim it
As the transfer is not to a trust, relief is only given if both Halle and Josh claim it. As the transfer involves private company shares, there is no requirement for it to be chargeable to IHT. While Halle needs to hold at least 5% of the voting rights at the time of the gift, there is no requirement for her to be or to remain a majority shareholder. There will be no CGT for Halle to pay as holdover relief effectively passes the liability onto Josh
Yared is considering investing in a single premium investment bond. As a basic-rate taxpayer, he should be aware of : Tick all that apply
A: he can withdraw up to 5% of the original capital each year without triggering a chargeable event
B: he can reclaim the basic rate tax suffered by the life fund
C: any gain ha makes in the future could potentially be liable to Capital Gains Tax
D: he can assign the policy to his spouse, although that would be a chargeable event
E: he can use top slicing on any future chargeable gain calculation
A: he can withdraw up to 5% of the original capital each year without triggering a chargeable event
E: he can use top slicing on any future chargeable gain calculation
5% of the original capital invested in a single premium investment bond can be withdrawn each year without triggering a chargeable event. Assignments between spouses are not chargeable events. Top slicing can be used if the gain pushes Yared into a higher tax bracket. The basic rate of tax paid in the life find cannot be reclaimed by Yared. Nor will future gains be liable to CGT; gains on investment bonds are subject to Income Tax
Lisa has recently made a £100,000 gain on selling her buy to let home. She is now considering whether to reinvest this in an Enterprise Investment Scheme. Which of the following would be a benefit to Lisa of doing this?
A: She can defer the original gain until she disposes of the EIS shares
B: 50% of the original gain will be exempt from tax
C: Any subsequent gain would be taxed at a lower rate on disposal
D: This will reduce the base cost of the EIS shares by the original gain
A: She can defer the original gain util she disposes of the EIS shares
The gain on selling her buy to let property can be deferred until she disposes of the EIS shares.
Sandy and Brian are carrying out Inheritance Tax mitigation and are keen to use the ‘normal expenditure out of income’ exemption. Which of the following is most likely to qualify?
A: Paying net annual premiums of up to £2,880 into a personal pension for their son from spare income
B: Paying a £45,000 deposit on a house purchase for their daughter
C: Using the 5% withdrawal facility from an investment bond to pay the premiums on a joint life second death life policy
D: Transferring their income producing investment portfolio to both children
A: Paying net annual premiums of up to £2,880 into a personal pension for their son from spare income
For the normal expenditure out of income exemption to apply, there must be a regular payment. The source of the regular payment must be income rather than capital. 5% withdrawals from an investment bond are a return of capital, not a source of income. Only the contributions into the personal pension meet the criteria.
Tim has recently started a job with a company car which has been adapted for his limited mobility. Which of the following would be taken into account when calculating the taxable benefit?
A: Any discount offered by the car dealer
B: Provision of a car phone
C: The car’s level of CO2 emissions
D: The cost of the adaptations for Tim
C: The car’s level of CO2 emissions
The car’s level of CO2 emissions is the determining factor. Any discounts are ignored, as is the provision of a car phone and the cost of adaptations or equipment to enable a person with a disability to use the car.
Simon makes a £7,500 contribution to his employer in respect of his new company car. How will this be treated when calculating the taxable benefit?
A: £7,500 will be deducted from the list price
B: £5,000 will be deducted from the list price
C: The contribution is ignored in the calculation
D: The first £2,500 of the contribution is deducted
B: £5,000 will be deducted from the list price
If an employee contributes towards the capital cost of their company car, the maximum deduction from the list price is £5,000. £2,500 of Simon’s contribution is therefore ignored. -
Julie is considering diversifying her portfolio by investing in gilts. She has aske you to explain the Income Tax and Capital Gains Tax position to her. You tell her that interest is:
A: paid net of 20% tax and losses for CGT are allowable
B: usually paid gross but is taxable and any gains are CGT exempt
C: paid gross but is taxable an only qualifying gilts are CGT free
D: paid net of 20% tax and disposal of a gilt is a chargeable event
B: usually paid gross but is taxable and any gains are CGT exempt
Interest on gilts is paid gross, unless Julie elects to have it paid net. The interest is taxable, and gains are exempt from CGT.
Priya owns an area of woodland close to her home. With regards to woodlands relief, she should be aware that the relief ( Tick all that apply)
A: applies to both the timber and the land
B: applies to lifetime gifts
C: applies to transfers on death
D: defer Inheritance Tax until disposal
C: applies to transfers on death
D: defers Inheritance Tax util disposal
IHT woodlands relief applies to the timber, but not the land. It does not apply to lifetime gifts, only on death. It defers IHT until the timber has been disposed of
One of your clients has recently been asked to be a trustee on a discretionary trust which has the bulk of its investment in equities. He is concerned about the taxation of any dividends for the trust and the beneficiaries. You tell him that the trust is
A: liable for 39.35% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not dividend income
B: not liable for any Income Tax and the beneficiary pays an extra 22.5% if they are a higher-rate taxpayer
C: liable for 8.75% Income Tax with the beneficiary pays an extra amount as determined by their own tax status
D: liable for 39.35% Income Tax after they have exceeded their dividend allowance and the beneficiary is deemed to have received trust income not dividend income
A: liable for 39.35% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not dividend income
Discretionary trusts are liable to Income Tax at the additional rate after they have used up their standard rate band. For dividend income, this is 39.35%. When a beneficiary receives income from a discretionary trust, they are deemed to have received ‘trust income’. The original source of the income becomes irrelevant
Aniket is considering using a discretionary trust to make provision for his children and future grandchildren as well as to mitigate his own Inheritance Tax position. He should be aware that: (Tick all that apply)
A: the transfer in is a potentially exempt transfer
B: capital distributions to a beneficiary may trigger an exit charge
C: the beneficiaries are entitled to an equal amount of income and capital
D: if a beneficiary dies, there is no charge to IHT on the beneficiary’s estate
B: capital distributions to a beneficiary may trigger an exit charge
D: if a beneficiary dies, there is no charge to IHT on beneficiary’s estate
The transfer into a discretionary trust is a chargeable lifetime transfer (CLT), not a potentially exempt transfer (PET). Capital distributions to a beneficiary trigger an exit charge. If a beneficiary dies, there is no charge to IHT on the beneficiary’s estate. None of the beneficiaries have a specific entitlement to any of the income or capital of the trust until the trustees use their discretion to make a payment.
Gail has set up a discretionary trust for her grandchildren for £400,000. Assuming she has a full nil rate band available and has NOT made any previous transfers, how much Inheritance Tax will be payable assuming the trustees pay the tax?
A: £30,000
B: £15,000
C: £14,400
D: £13,800
D: £13,800
Where the trustees pay the immediate tax due, the charge is 20% of the excess over the nil rate band. From the £400,000 we can deduct 2 x annual exemptions – one for the current tax year and one for the previous tax year. £400,000 - £3,000 - £3,000 = £394,000. £394,000 - £325,000 = £69,000. £69,000 @ 20% = £13,800. -
Thomas is an additional-rate taxpayer and makes a gift aid payment of £5,000 to a charity. How much can the charity reclaim from HM Revenue & C?
A: £500
B: £1,000
C: £1,250
D: £2,250
C: £1,250
Gift aid donations are paid from net income under the relief at source method. A payment of £5,000 therefore needs to be grossed up (i.e. divided by 0.8) to find out the amount the charity will receive in total. £5,000 / 0.8 = £6,250. The charity can reclaim the difference (£6,250 - £5,000 = £1,250) from HMRC to boost the donation.
Harry, who was born in England and lived here all his life, is about to move to France. When arranging his tax affairs, he should be aware that he (tick all that apply)
A: should inform HM Revenue & Customs either via self-assessment or form P85 of his move
B: will be a UK resident for the remainder of the tax year of his departure
C: can continue to contribute to his Lifetime ISA for the first three tax years of non-residence
D: will remain entitled to a personal allowance for Income Tax purposes
A: should inform HM Revenue & Customs either via self-assessment or form P85 of his move
D: will remain entitled to a personal allowance for Income Tax purposes
People leaving the UK should inform HMRC either via their self assessment tax return or using form P85. As a UK citizen, Harry will remain entitled to a personal allowance. His residence status will be determined by the statutory tests of residence, and we cannot say from the information given whether he will be a resident for the remainder of the current tax year. Once he becomes non-resident, he will no longer be able to contribute to his Lifetime ISA.
John and Pat have two young children. They have therefore included a trust for ‘bereaved minors’ in their wills. Which of the following should they be made aware of regarding this type of trust?
A: Until age 18, the trust assets are treated as belonging to the child for Inheritance Tax purposes
B: Until age 18, the trust assets are treated as being outside of the child’s estate for Inheritance Tax purposes
C: Periodic and exit charges apply if either of them dies before the children reach the age of 18
D: The trust comes into effect immediately
A: Until age 18, the trust assets are treated as belonging to the child for Inheritance Tax purposes
Until the age of 18, the trust assets are treated as belonging to the child and are therefore inside of the child’s estate. Periodic and exit charges are dependent on the age of the child when the trust pays out, rather than on their age at the death of the parent. The trust only comes into effect on death, not straightaway
Hettie, age 68, has recently retired. She has designated her pension fund into flexi-access drawdown and takes £15,000 a year as income. She is a basic-rate taxpayer. She should be aware that (tick all that apply)
A: the future level of her annual allowance is reduced to £10,000
B: she may no longer make pension contributions
C: if she dies after age 75, her entire fund will be subject to Income Tax at the basic rate
D: death benefits are tax free before age 75 if they are paid or designated within two years
A: the future level of her annual allowance is reduced to £10,000
D: death benefits are tax free before age 75 if they are paid or designated within two years
The following investments into shares have recently been made:
Toby - basic-rate taxpayer, company X, dividend received £100
Rupert - a higher-rate taxpayer, company Y, dividend received £100
Simon - an additional-rate taxpayer, company Z, dividend received £100
Which of the following is true regarding the taxation of the dividends received?
A: Only Toby and Rupert will benefit from the dividend allowance
B: Assuming Toby’s dividend allowance is already used, he will have a liability on his gross dividend of 10%
C: Rupert could have an Income Tax liability of up to £39.35
D: Simon could have an Income Tax liability of up to £39.35
D: Simon could have an Income Tax liability of up to £39.35
Simon’s Income Tax liability – assuming his dividend allowance is fully used – could be £39.35, i.e. £100 @ 39.35% which is the additional rate of tax for dividend income. All three will benefit from the dividend allowance. Toby could have a further Income Tax liability of 8.75% (basic-rate tax) and Rupert of 33.75% (higher-rate tax).
Steven is a higher-rate taxpayer and has received £2,000 interest from a savings account. Regarding the tax position of the interest, it is true to say that it will have been paid
A: gross and he will pay 40% tax on £1,000 with the remainder exempt under his personal savings allowance
B: gross and he will pay 40% tax on £1,500 with the remainder exempt under his personal savings allowance
C: net and he will pay 20% tax on the grossed-up amount
D: gross and he will pay 20% tax on £1,500 with the remainder exempt under his personal savings allowance
B: gross and he will pay 40% tax on £1,500 with the remainder exempt under his personal savings allowance
Interest from a savings account is paid gross. As a higher-rate taxpayer, Steven will receive a personal savings allowance of £500. £500 of his savings income will therefore be taxed at 0%. The remaining £1,500 (£2,000 - £500) will be taxed at 40%.
Kerry, age47, is a full-time employee. In the current tax year, she receives a weekly salary of £1,100. How much are her employer’s weekly National Insurance contributions in respect of Kerry in 2023/24?
A: £127.65
B: £139.21
C: £151.80
D: £165.55
A: £127.65
The first £175 of Kerry’s weekly earnings are not subject to employer’s NICs. Weekly earnings in excess of £175 are liable for NICs at 13.8% for 2023/24. £1,100 - £175 = £925 @ 13.8% = £127.65. -
An individual can transfer overseas assets into an excluded property trust to protect themselves from IHT. It is true to say that such trusts are usually
A: interest in possession trusts and the settlor can be one of the beneficiaries
B: interest in possession trusts but the settlor cannot be one of the beneficiaries
C: discretionary trusts but the settlor cannot be one of the beneficiaries
D: discretionary trusts and the settlor can be one of the beneficiaries
D: discretionary trusts and the settlor can be one of the beneficiaries
Assets within an excluded property trust remain protected from Inheritance Tax even in the event of the settlor subsequently becoming UK domiciled. Such trusts are usually discretionary trusts, and the settlor can be one of the beneficiaries.
Cliff is employed as a company director and he is self-employed as a sole trader. With regard to the amount of National Insurance contributions he may have to pay, Cliff should be aware that (Tick all that apply)
A: there is a maximum annual employee contribution at the main rate
B: there is no limit on contributions payable at the 2% additional rate
C: if his employee earnings are under the upper earnings limit, he will be exempt from class 2 NICs
D: all of his contributions will be collected via self-assessment
A: there is a maximum annual employee contribution at the main rate
B: there is no limit on contributions payable at the 2% additional rate
There is a maximum annual employee contribution at the main rate but there is no limit on NICs payable at the 2% additional rate. Cliff will not be exempt from class 2 NIC if his employment earnings are under the UEL. While Cliff’s class 2 and class 4 NICs will be collected via self-assessment, any class 1 employee contributions will be collected by his employer under Pay As You Earn.
Desmond, a UK domicile, is the settlor of an offshore trust where the trustees have made a £25,000 capital gain in this tax year. Which of the following statements regarding any Capital Gains Tax liability are correct? Tick all that apply
A: Desmond is liable but only if he has an interest in the trust
B: Desmond is liable if he is UK resident this tax year and has an interest in the trust
C: Desmond would not be liable if the trust was created after 6 April 1999
D: Where gains are not taxed on Desmond, UK resident beneficiaries will be liable on the distribution of stockpiled gains
B: Desmond is liable if he is UK resident this tax year and has an interest in the trust
D: Where gains are not taxed on Desmond, UK resident beneficiaries will be liable on the distribution of stockpiled gains
The settlor is liable for any gains made if they are a UK resident and have an interest in an offshore trust. If Desmond meets these criteria, the gains will be taxed on him. If he does not, any UK resident beneficiaries will be liable instead when any gains are distributed.
The following investors have each paid into their ISAs for this tax year:
Barney - Lifetime ISA £3,500
Innovative Finance ISA £15,000
Barry - Lifetime ISA £3,000
Innovative Finance ISA £16,750
Bertie - Lifetime ISA £3,750
Innovative Finance ISA £16,000
Bill - Lifetime ISA £3,300
Innovative Finance ISA £16,000
Who can make the largest additional investment into their Lifetime ISA this tax year?
A: Barney
B: Barry
C: Bertie
D: Bill
D: Bill
While the overall ISA limit is £20,000 a year, only £4,000 can be invested in a Lifetime ISA. Barney has invested £15,000 in his IFISA and £3,500 in his LISA, leaving £500 available for the LISA. While Barry has only invested £3,000 in his LISA, he only has £250 of his £20,000 left on account of his £16,750 IFISA investment. Bertie also only has £250 remaining for his LISA. Bill has £700 of his allowance remaining to invest in his LISA. He is therefore the one who can make the largest additional contribution into his LISA.
Rebecca and Sally’s relationship has broken down. Rebecca has now moved out of the house they bought together, and Sally will be taking over the property. Sally paid Rebecca £24,000 and the joint mortgage was for £185,000. On what amount does Stamp Duty Land Tax have to be considered for Sally?
A: £185,000
B: £116,500
C: £92,500
D: Nil
B: £116,500
SDLT is based on the market value of the property acquired. Sally has acquired property valued at £116,500, i.e., half the mortgage of £185,000 = £92,500 plus the £24,000 paid in cash = £116,500. However, as this is under £250,000, no SDLT is actually payable
Two clients hold the following investments:
Mabel - onshore bond - purchase price £50,000 - current value £60,000 - term held 5years, 3 months
Rachel - offshore bond - purchase price £70,000 - current value £60,000 - term held 4 years
Assuming no withdrawals have been made from either investment, you can advise Mabel and Rachel that
A: on encashment both Mabel and Rachel will be subject to Capital Gains Tax
B: Mabel can withdraw £15,000 without triggering a chargeable event
C: Rachel can withdraw £15,000 without triggering a chargeable event
D: only Mabel can benefit from top slicing
B: Mabel can withdraw £15,000 without triggering a chargeable event
5% of the original investment can be withdrawn each policy year. Mabel is now in her sixth policy year. She can therefore withdraw £50,000 x 5% x 6 = £15,000. Both onshore and offshore bonds are subject to Income Tax, not CGT. Top slicing can apply to both types of bond
Mariam, a sole trader, started in business in 2010. She makes up her accounts to the 31 March. What is the impact on her in tax year 2023/24 of the assessment basis changing from a current-year to a tax-year basis?
A: There is no impact on Mariam as she started her business more than ten years ago
B: Mariam’s profits will be assessed from the end of 2022/23 through to 5 April 2024
C: There is no impact on Mariam as she makes up her accounts to the end of the tax year
D: Mariam’s profits will be assessed as normal for this tax year as 2024/25 is the transitional year between the old and new basis
C: There is no impact on Mariam as she makes up her accounts to the end of the tax year
Tax year 2023/24 is the transition year between the old current-year and the new tax-year basis. However because Mariam makes up her accounts to 31 March (or 5 April) the change of basis periods has no impact on her. For others, the basis of assessment for the tax year 2023/24 will be the profits from the end of the 2022/23 assessment period through to 5 April 2024. Any brought forward overlap profits will be deducted. A business that starts up during 2023/24 will go straight onto the tax-year basis.
Alex is self-employed and has asked you to explain what is included in the balancing payment he has to make to HM Revenue & Customs in January of each year. You tell him the following is included:
A: class 2 National Insurance contributions, the balance of Income Tax and class 4 National Insurance contributions and any Capital Gains Tax outstanding
B: class 4 National Insurance contributions and any Capital Gains Tax outstanding only
C: class 2 National Insurance contributions and any outstanding Income Tax only
D: class 2 National Insurance contributions, the balance of Income Tax, class 1 National Insurance contributions and any Capital Gains Tax outstanding
A: class 2 National Insurance contributions, the balance of Income Tax and class 4 National Insurance contributions and any Capital Gains Tax outstanding
Alex’s balancing payment includes class 2 NICs, the balance of Income Tax and class 4 NICs and any Capital Gains Tax outstanding.
The following investments into AIM shares have recently been made:
Susie - an additional-rate taxpayer - company A - dividend received £3,000
Roberta -a higher-rate taxpayer - company B- dividend received £2,500
Tracy - a basic-rate taxpayer - company C - dividend received £4,750
Which or the following is true regarding the taxation of the dividends received?
A: Susie, as an additional-rate taxpayer, will not benefit from the dividend allowance
B: Roberta could have an Income Tax liability of up to £843.75
C: Tracy could have an Income Tax liability of up to £40.62
D: Susie’s minimum Income Tax liability is £393.50
B: Roberta could have an Income Tax liability of up to £843.75
Susie is entitled to a dividend allowance (it’s the personal savings allowance that is not available to additional rate taxpayers). Roberta could have a liability of up to £2,500 @ 33.75% = £843.75. Tracy could have a liability of up to £4,750 @ 8.75% = £415.62. Susie’s minimum tax liability is £3,000 - £1,000 = @ 39.35% = £787.00.
John is employed full time but also has self-employed profits of £100 per week. Which of the following National Insurance contributions must John pay on his self-employed earnings?
A: Class 2 only
B: Class 3 only
C: Class 4 only
D: He is not obliged to make any contribution
D: He is not obliged to make any contribution
As John’s annual earnings for self-employment are under the small profits threshold of £6,725, he is not obliged to pay NICs on them. -
One of your clients has recently been asked to be a trustee of a discretionary trust which has the bulk of its investment in fixed interest investments. She is concerned about the taxation of any corporate bonds for the trust and the beneficiaries. You tell her that the trustees are
A: liable for 45% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not savings income
B: not liable for any Income Tax and the beneficiary pays a flat charge of 40% directly to HM Revenue & Customs
C: liable for 20% Income Tax with the beneficiary liable to pay any extra tax due on account of their individual tax status
D: liable for 45% Income Tax after they have exceeded their personal savings allowance and the beneficiary is deemed to have received trust income not savings income
A: liable for 45% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not savings income
Discretionary trusts are liable to Income Tax at the additional rate after they have used up their standard rate band. For savings income, this is 45%. When a beneficiary receives income from a discretionary trust, they are deemed to have received ‘trust income’. The original source of the income becomes irrelevant.
Sarah is a basic-rate taxpayer and in August 2015 took out a 10-year qualifying life policy as a savings plan. Regarding this policy, which of the following is true?
A: If she is a UK resident, she will receive full tax relief on the premiums
B: For the policy to keep its qualifying status, she cannot pay more than £36,000 in premiums over the term
C: The premiums will be taken into account on maturity when a chargeable event is triggered
D: The premiums must be paid monthly, annually or as a single premium
B: For the policy to keep its qualifying status, she cannot pay more than £36,000 in premiums over the term
For qualifying policies issued since 6 April 2013, premiums are restricted to £3,600 per year. To keep her policy’s qualifying status, Sarah therefore needs to ensure she does not pay more than £36,000 in premiums over the 10-year term.
Saskia, a higher-rate taxpayer, has an offshore bond and her friend Jo, an additional rate taxpayer, has an onshore bond. Both have been UK resident for the duration of their bond holdings. No previous chargeable events have occurred. In relation to their respective top-slicing calculations, it is true to say that (tick all that apply)
A: 20% basic rate tax is deducted at Step 2 for onshore bonds only
B: 20% basic rate is deducted at Step 4 for both onshore and offshore bonds
C: only offshore bonds benefit from the personal savings allowance
D: only Saskia can benefit from the personal savings allowance
E: for both Saskia and Jo, N will be measured from the start of the policy
B: 20% basic rate tax is deducted at Step 4 for both onshore and offshore bonds
D: only Saskia can benefit from the personal savings allowance
E: for both Saskia and Jo, N will be measured from the start of the policy
20% basic rate tax is deducted at Steps 2 and 4 for both onshore and offshore bonds. Both types of bond benefit from the PSA in general, although Jo will not as she is an additional rate taxpayer. For both Saskia and Jo, N (the number of full policy years) will be measured from the start of the policy
Pauline died on 1 October 2023. Regarding payment of any Inheritance Tax on Pauline’s estate, it is correct to say that her
A: legal personal representatives must pay any tax due by 30 April 2024
B: next of kin must pay any tax due by 5 April 2024
C: beneficiaries must pay any tax due by 5 April 2024
D: trustees must pay any tax due by 1 October 2024
A: legal personal representatives must pay any tax due by 30 April 2024
The IHT on Pauline’s estate is payable by her legal personal representatives and is due six months after the end of the month in which her death occurred, i.e. by 30 April 2024
Kevin is fast approaching retirement age. His pension pot is currently valued at £500,000. He has decided he would like to take the maximum pension commencement lump sum available and then drawdown £25,000 pension income. This would be in addition to his part-time annual earnings of £27,500 and dividend income of £4,500. What would his total Income Tax liability be in 2023/24?
A: £8,738.25
B: £9,569.50
C: £9,613.25
D: £10,288.25
C: £9,613.25
The pension commencement lump sum of £125,000 (£500,000 x 25%) is irrelevant. The part-time earnings and pension income are both classed as non-savings income and are charged to tax after the deduction of the personal allowance. £27,500 + £25,000 = £52,500 - £12,570 = £39,930. This fully uses up the basic rate tax band, so £37,700 is charged to tax at 20%. The remaining £2,230 (£39,930 - £37,700) is then charged at the higher rate of 40%. £37,700 @ 20% = £7,540. £2,230 @ 40% = £892. £1,000 of the £4,500 dividend income is eligible for the dividend allowance and is charged at 0%. The remaining £3,500 (£4,500 - £1,000) is charged at the higher rate for dividends of 33.75%. £3,500 @ 33.75% = £1,181.25. Total Income Tax payable is therefore £7,540 + £892 + £1,181.25 = £9,613.25.
Susan died on 1 February 2005, when the nil rate band was £263,000. She left £78,900 in trust for her niece and the remainder of her estate to her husband Ron. She had made no lifetime gifts. On Ron’s death, his estate was valued at £1.5m, including the family home valued at £750,000 with no mortgage outstanding. His estate was left to the couple’s two children. Ron had made no lifetime gifts. What is the Inheritance Tax liability on Ron’s estate?
A: £239,000
B: £263,920
C: £291,000
D: £301,680
A: £239,00
On Susan’s death 30% (£78,900/£263,000) of her NRB was used, leaving 70% of the NRB in place at the date of Ron’s death available to Ron’s estate (£325,000 @ 70% = £227,500). 2 x RNRB are also available, 2 x £175,000 = £350,000. IHT is therefore due on £1,500,000 - £227,500 - £325,000 - £175,000 - £175,000 = £597,500 @ 40% = £239,000.
Which of the following is most likely to be classed as a gift with reservation for Inheritance Tax purposes by HM Revenue & Customs?
A: Stan gives away his rental home but often stays there paying full market rent
B: Elaine gives away her antique jewellery to her daughter but cleans it annually
C: Edmond gives his son his share portfolio but retains the right to dividends from it
D: Andrea gives a painting to her brother who hangs it in his own sitting room
C: Edmond gives his son his share portfolio but retains the right to dividends from it
A gift with reservation (GWR) is one that is not enjoyed to the exclusion or virtual exclusion of the donor. By retaining the right to dividend income, Edmond has not given away the asset completely and the share portfolio will therefore be classed as a GWR. By paying full market rent, Stan’s gift is unlikely to be classed as a GWR.
Amanda is selling her flat and buying a larger residential property in Manchester for £380,000. She has agreed with the vendor that this includes £5,500 for all of the white goods, carpets, and curtains. How much Stamp Duty Land Tax is payable?
A: £6,225
B: £6,500
C: £11,115
D: £11,500
A: £6,225
A reasonable amount for fixtures and fittings can be deducted from the buying price. £380,000 - £5,500 = £374,500. The first £250,000 is charged to SDLT at 0%, leaving £124,500 (£374,500 - £250,000) chargeable at 5% = £6,225.
Gillian has recently invested £20,000 into each of the following investment; UK listed shares, a Corporate Bond and a UK domiciled Exchange Traded Fund. What amount of Stamp Duty Reserve Tax will Gillian pay in total?
A: Nil
B: £100
C: £200
D: £300
B: £100
Stamp duty reserve tax is not payable on the purchase of corporate bonds or UK domiciled ETFs. It is payable at a rate of 0.5% of UK listed shares. Gillian will therefore pay £20,000 @ 0.5% = £100.
Jules sold a holiday cottage for £175,000. She paid £100,000 for it in 2010. Her selling costs were £3,000 and her buying costs £1,750. While she owned the cottage, she added a small extension to house a mini-spa area which cost her £10,000. She also incurred monthly advertising and cleaning costs of £100. How much is her gain for Capital Gains Tax purposes?
A: £59,050
B: £60,250
C: £61,450
D: £75,000
B: £60,250
The disposal proceeds are £175,000. From this we can deduct the purchase price of £100,000, the selling costs of £3,000, the buying costs of £1,750 and the enhancement expenditure of £10,000. This gives a gain of £60,250. The advertising and cleaning costs are ignored for CGT purposes but can be deducted from rental income for tax purposes
Delta gifted an investment portfolio to her daughter. The portfolio, which was valued at £450,00 after exemptions included a newly acquired Enterprise Investment Scheme holding valued at £100,000. Delta died four and a half years later. The portfolio was then valued at £525,000 which includes the EIS holding valued at £150,000. How much IHT is payable by Delta’s daughter in respect of the gift assuming Delta died in this tax year?
A: £6,000
B: £10,000
C: £12,000
D: £20,000
A: £6,000
The IHT value of the gift is the value at the date it was made, not the value at the date of Delta’s death. As the EIS had been held for more than two years it has become eligible for business relief and so we can deduct this from the value of the portfolio. Therefore, £450,000 – £100,000 (EIS holding) - £325,000 (NRB) = £25,000 chargeable to tax at 40%. £25,000 @ 40% = £10,000. Because Delta died between 4 and 5 years of making the gift taper relief applies. Only 60% of the bill is payable. £10,000 @ 60% = £6,000. -
Shaun has recently sold his buy to let house for £150,000 having paid £93,000 for it 15 years ago. He has incurred the following expenses; estate agent fees of £1,500; legal fees of £800 and £45 for a plumber to repair the shower prior to sale. What is his gain for Capital Gains Tax purposes?
A: £56,200
B: £55,500
C: £54,700
D: £54,655
C: £54,700
Expenses that can be claimed against income are not allowed as deductions for CGT purposes. We must therefore ignore the plumber repair of £45. Shaun’s gain is £150,000 - £93,000 - £1,500 - £800 = £54,700.
Tillie is resident and domiciled in the UK. She earns £20,000 a year and receives income from investments in France left to her by her uncle. Her employer has recently sent her to work in France for five years and she has become non-resident. She intends to return to the UK once her five years are complete. It is true to say that
A: Tillie will not be required to pay UK tax on her employment earnings in France
B: Tillie will still be required to pay UK tax on her investment income from France
C: if she dies while in France, Tillie will only be liable to Inheritance Tax on assets in the UK
D: if she dies while in France, Tillie will only be liable to Inheritance Tax on any assets acquired in France since her departure from the UK
A: Tillie will not be required to pay UK tax on her employment earnings in France
As a non-resident, Tillie will no longer be required to pay UK tax on any of her investment income from France. Nor will she be required to pay UK tax on her employment earnings in France. On her death, IHT will be liable on her worldwide property as she will retain her UK domicile given her intention to return to the UK
Gemma is a higher-rate taxpayer. She invested £100,000 into an onshore investment bond just over eight years ago, which was segmented into 100 identical policies. The bond is now valued at £140,000. She would like to know how much she can withdraw from the bond with the minimum amount of tax liability. You tell her that she can:
A: withdraw £500 from each policy without any immediate tax liability
B: withdraw £500 from each policy with a 20% tax liability on £50,000
C: surrender 50 policies with a 20% tax liability on £10,000
D: withdraw £450 from each policy without any immediate tax liability
D: withdraw £450 from each policy without any immediate tax liability
If £100,000 is invested in an onshore investment bond segmented into 100 identical policies, then each policy segment is worth £1,000 at outset. Under the 5% withdrawal facility, 5% of each segment can be withdrawn each policy year with no immediate liability to tax. As the bond is just over eight years old, we are now in the ninth policy year. Therefore £1,000 @ 5% x 9 can be taken from each policy without a tax liability at the time - which is £450.
The following investments have been made:
Kiera, a basic-rate taxpayer- Investment - Venture Capital Trust - £10,000
Greg, a higher-rate taxpayer - Investment - Enterprise Investment Scheme - £30,000
Harriet, an additional-rate taxpayer - Investment - Seed Enterprise Investment Scheme - £205,000
What is the total amount of Income Tax relief that will be allowed?
A: £62,000
B: £112,000
C: £114,500
D: £116,000
B: £112,000
£10,000 @ 30% (£3,000) for the VCT, £30,000 @ 30% (£9,000) for the EIS and £200,000 @ 50% (£100,000) for the SEIS (note the SEIS investment exceeds the £200,000 limit and the tax relief is therefore capped). Gives a total amount of Income Tax relief of £112,000
