R03 - Chapter 1 - Income Tax

Question 1

Glen has £10,000 gross pension income, £5,000 dividends, £2,000 gain from an offshore life assurance bond and £3,000 interest from a purchased life annuity. What is his non-investment income?
Select one:
a. £12,000.
b. £17,000.
c. £10,000.
d. £20,000.

Answer 1

c. £10,000 chapter reference 1A4

Question 2

Conlan, who is an additional-rate taxpayer, makes a gift aid payment of £4,500 to his favourite charity. The payment is treated as if it were a donation of:
Select one:
a. £10,000.
b. £6,525.
c. £5,400.
d. £5,625.

Answer 2

d. £5,625 chapter reference 1E1

Question 3

Jane is a higher-rate taxpayer and has received net interest of £5,000 from her portfolio of directly held gilts. What should she declare on her annual tax return?
Select one:
a. The amount of tax deducted.
b. The unit trust provider.
c. The grossed up interest.
d. The net interest received.

Answer 3

d. The net interest received. chapter reference 1B1D

Question 4

Phil owns a buy-to-let property and is calculating the tax payable on his rental income. Which would NOT be an allowable deduction for income tax purposes?
Select one:
a. Cost of converting the attic into a new bedroom.
b. Fixing the front door after an attempted break in.
c. Rates payable to the local council.
d. Redecorating the hall, stairs and landing.

Answer 4

a. Cost of converting the attic into a new bedroom. chapter reference 1A3

Question 5

When calculating an individual’s income tax liability certain payments are tax reducers, including:
Select one:
a. qualifying interest payments and investments into enterprise investment schemes.
b. qualifying interest payments and investments into venture capital trusts.
c. investments into enterprise investment schemes and venture capital trusts.
d. gifts to charities of shares and securities, allowable business losses and qualifying interest payments.

Answer 5

c. investments into enterprise investment schemes and venture capital trusts. chapter reference 1C

Question 6

In this tax year, Alonzo has a share of partnership profits of £450,000, out of which he makes gross pension contributions of £40,000 and pays interest of £125,000 on a loan in his name taken out for the purposes of buying plant and machinery for the partnership. How much of this interest will NOT benefit from tax relief?
Select one:
a. £22,500.
b. £50,000.
c. £75,000
d. £12,500.

Answer 6

a. £22,500. chapter reference 1D

Question 7

Silvia wants to set up a trust for her grandchildren where the assets and income can be distributed to them in line with their individual needs and requirements. Which is the most suitable trust?
Select one:
a. Discretionary trust.
b. Interest in possession trust.
c. Accumulation and maintenance trust.
d. Bare trust.

Answer 7

a. Discretionary trust. chapter reference 1K5

Question 8

In deciding whether an individual should be treated as employed or self-employed for tax purposes:
Select one:
a. the existence of a contract to provide services usually indicates that the individual is self-employed.
b. a self-employed individual is never given set hours or engaged for a long period of time.
c. the existence of a contract of service usually indicates that the individual is self-employed.
d. a self-employed individual cannot sub-contract someone else to carry out the work.

Answer 8

a. the existence of a contract to provide services usually indicates that the individual is self-employed. chapter reference 1A7A

Question 9

Anastasia has had some of her husband’s income tax personal allowance transferred to her. This must mean that:
Select one:
a. she has an income of less than £12,570 and he is neither a higher-rate taxpayer, nor an additional-rate taxpayer.
b. she is either a higher-rate taxpayer or an additional-rate taxpayer.
c. he has an income of less than £12,570 and she is neither a higher-rate taxpayer, nor an additional-rate taxpayer.
d. he pays tax at the basic rate but is not either a higher-rate taxpayer or an additional-rate taxpayer.

Answer 9

c. he has an income of less than £12,570 and she is neither a higher-rate taxpayer, nor an additional-rate taxpayer. chapter reference 1H3

Question 10

Margaret is a higher-rate taxpayer and has total dividend income of £60,000. How much tax will she pay on this income in 2021/22?
Select one:
a. £19,500.
b. £22,098.
c. £18,850.
d. £24,000.

Answer 10

c. £18,850. chapter reference 1I1

Question 11

Lee is required to relocate to Scotland for his work. If the £12,500 cost of relocation is paid for by his employer, the amount that is taxable is:

Select one:

a. £4,500.
b. £12,500.
c. £8,000.
d. nil.

Answer 11

a. £4,500.

chapter reference 1G6G

Question 12

Peter is a basic-rate taxpayer and Robert is a higher-rate taxpayer. They received total dividends of £10,000 each in the 2021/22 tax year. What are their individual tax liabilities on the dividends?

Select one:

a. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.
b. Peter has a tax liability of £800 whilst Robert has a £2,600 tax liability.
c. Peter has a tax liability of £1,600 whilst Robert has a £3,200 tax liability.
d. Peter has a tax liability of £975 whilst Robert has a £4,225 tax liability.

Answer 12

a. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.

Correct, chapter reference 1I1

Question 13

The married couple’s allowance provides tax relief as a:

Select one:

a. lump sum payment.
b. deduction from the individual’s gross income.
c. extension of the individual’s threshold before they pay higher-rate tax.
d. deduction from the individual’s tax liability.

Answer 13

d. deduction from the individual’s tax liability.

chapter reference 1H4

Question 14

Which individual will NOT be entitled to a personal allowance?

Select one:

a. Mary, who lives in Malta and is a widow of John who was a Crown servant.
b. Tord, who is a national of Norway.
c. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.
d. Greg, who lives in the Isle of Man.

Answer 14

c. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.

chapter reference 1H1

Question 15

Fay is aged 60 and receives a pension of £13,000 per annum with £4,000 building society interest. What amount of tax, if any, is Fay due to pay on the interest payment?

Select one:

a. £30.
b. £830.
c. £800.
d. £0.

Answer 15

d. £0.

chapter reference 1B1A

Question 16

Mary and Steve have a daughter Leila, aged 10. Annually, Mary earns £20,000 and Steve earns £54,000. As a result, their child benefit will be reduced by:

Select one:

a. 25%.
b. 45%.
c. 35%.
d. 40%.

Answer 16

d. 40%.

chapter reference 1J4

Question 17

Agnes, a higher-rate taxpayer, is the life tenant of an interest in possession trust which has received dividend income totalling £1,000. Assuming Agnes has already fully utilised her dividend allowance, how will this income be taxed when paid out to her?

Select one:

a. She will receive it net of a £75 tax credit and will have to pay a further £250 in tax.
b. She will receive it net of 45% tax and she can potentially reclaim some tax.
c. She will receive it net of 32.5% tax and she will not have any further liability on this income.
d. She will receive the £1,000 gross as it is covered by the trust’s dividend income nil rate band.

Answer 17

a. She will receive it net of a £75 tax credit and will have to pay a further £250 in tax.

chapter reference 1K5A/1K5B

Question 18

Simon has recently taken out a loan and has been advised by his accountant that the interest payments can be treated as an allowable deduction from his total income. This is because the loan was taken out to:

Select one:

a. purchase a buy-to-let property.
b. purchase a UK gilt.
c. purchase some land for development.
d. pay an inheritance tax bill.

Answer 18

d. pay an inheritance tax bill.

chapter reference 1D

Question 19

Four clients all made their first net personal pension contributions in this tax year. Who would definitely NOT qualify for full tax relief on their contribution?

Select one:

a. Thomas, who has never been a member of any other pension scheme, has relevant earnings of £20,000 and contributed £18,000 net.
b. Marion, who has never been a member of any other pension scheme, has no relevant earnings and contributed £2,880 net.
c. Jacob who has relevant earnings of £80,000 and contributed £60,000 net having not made any pension contributions in the previous three tax years.
d. Natalie, who has been a member of her company scheme for 3 years, has relevant earnings of £50,000 and contributed £40,000 net.

Answer 19

a. Thomas, who has never been a member of any other pension scheme, has relevant earnings of £20,000 and contributed £18,000 net.

chapter reference 1F1

Question 20

Helen earns £55,000 per annum and receives UK building society interest of 2% on her £62,000 deposit. If this is her only savings income, how much tax will she pay on this interest per year?

Select one:

a. £148.
b. £96.
c. £496.
d. £296.

Answer 20

d. £296.

chapter reference 1I1

Question 21

Mike wants to set up a trust for his grandson where the asset itself belongs to the beneficiary. What is the most suitable trust?

Select one:

a. Accumulation and maintenance trust.
b. Discretionary trust.
c. Bare trust.
d. Constructive trust.

Answer 21

c. Bare trust.

chapter reference 1K2A

Question 22

Michael makes a contribution of £9,000 towards his new company car. What amount is deducted from the list price before calculating the benefit?

Select one:

a. £4,000.
b. £5,000.
c. £7,500.
d. £9,000.

Answer 22

b. £5,000.

chapter reference 1G2B

Question 23

George qualifies to receive the married couple’s allowance at the full rate. What is the implication for him?

Select one:

a. He can expand his basic rate band by £9,125.
b. He can reduce his tax liability by £912.50.
c. He can reduce his tax liability by £1,825.
d. He can add £9,125 to his personal allowance.

Answer 23

b. He can reduce his tax liability by £912.50.

chapter reference 1H4

Question 24

ABC Ltd has provided John, an employee, with rent-free accommodation. How will this benefit be taxed?

Select one:

a. There is a tax charge which both John and ABC Ltd will have to pay.
b. There is no tax liability for either John or ABC Ltd.
c. There is generally a tax charge which John will have to pay.
d. There is generally a tax charge which ABC Ltd will have to pay.

Answer 24

c. There is generally a tax charge which John will have to pay.

chapter reference 1G4A

Question 25

Sarah is a self-employed designer with profits of £5,000. She completed a gift aid donation of £90. The charity will:

Select one:

a. ask Sarah to pay the tax as she is a non-taxpayer.
b. be able to claim the tax relief from future income.
c. ask Sarah to pay the tax as she is self-employed.
d. not be able to claim the tax relief.

Answer 25

a. ask Sarah to pay the tax as she is a non-taxpayer.

chapter reference 1E1

Question 26

George earns £160,000 a year, and in addition to this he receives total dividend income of £2,000. His tax liability on the dividend income alone is:

Select one:

a. £762.
b. £900.
c. £0.
d. £650.

Answer 26

c. £0.

Correct, chapter reference 1I1

Question 27

Karen has a new petrol company car registered in June 2021 with a list price of £23,000 and a CO2 emission of 175 g/km. She contributed £7,000 towards the capital cost of her company car. As a result the taxable benefit of the car is reduced by:

Select one:

a. £1,600.
b. £0.
c. £1,850.
d. £2,590.

Answer 27

c. £1,850.

chapter reference 1G2A/1G2B

Question 28

An employee has a loan of £20,000 from her employer which is used to purchase a house. The employee pays interest at 1.25%. What is the taxable benefit on the loan if the official rate for these types of loans in 2021/22 is 2%?

Select one:

a. £150.
b. £400.
c. £250.
d. £200.

Answer 28

a. £150.

Correct, chapter reference 1G3