Tests 1 -3 - rechecks

Question 1

Neil is self-employed and is very late in paying the £10,000 balancing charge which was due on 31 January 2021. What would be the penalty on this amount if it was still outstanding in mid February 2022?

Select one:

a. £500.
b. £1,500.
c. £2,000.
d. £1,000.

Answer 1

b. £1,500.

chapter reference 6A4

Question 2

William has an endowment policy and he has been advised that the proceeds could be subject to income tax on maturity as the policy does not meet the qualifying rules. What would NOT be a contributing factor to this potential tax liability?

Select one:

a. The policy was taken out in May 2013.
b. The policy is on a single life basis.
c. The premiums are £400 per month.
d. The term of the policy is 8 years.

Answer 2

b. The policy is on a single life basis.

chapter reference 10G1

Question 3

Bob, an additional-rate taxpayer, has received £50 from the non tax-exempt element from his UK real estate investment trust. How will this payment be treated for tax purposes?

Select one:

a. As property income.
b. As UK dividend income.
c. As savings income.
d. The payment will be ignored for tax purposes as it was below £100.

Answer 3

b. As UK dividend income.

chapter reference 10J3

Question 4

If a family qualifies for the family element of the child tax credit they could receive up to how much per annum?

Select one:

a. £2,830.
b. £545.
c. £6,530.
d. £750.

Answer 4

b. £545.

chapter reference 11B2A

Question 5

George, aged 50 and self-employed, has profits of £75,000 for 2021/22. What is George’s total National Insurance contribution liability for 2021/22?

Select one:

a. £4,157.78.
b. £3,821.78
c. £5,888.88.
d. £4,316.38.

Answer 5

d. £4,316.38.

chapter reference 12A5B

Question 6

Jo, who has taxable income after deduction of the personal allowance of £34,200 for 2021/22, purchased a diamond ring for £6,500 in 2005. She sold the ring for £28,000 in August 2021, with no other gains or losses in 2021/22. Jo’s capital gains tax liability will be:

Select one:

a. £1,900.
b. £920.
c. £1,550.
d. £1,490.

Answer 6

d. £1,490.

chapter reference 12A5C

Question 7

If Tim owns a furnished holiday let and he wants to make pension contributions based on the income from this, the property must:

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

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

Answer 7

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

chapter reference 9C12

Question 8

The anti-avoidance rules are designed to prevent people exploiting pension flexibility by:

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

a. introducing a tapered reduction to the amount of the annual allowance for higher earners.
b. imposing a reduced annual allowance once a pension is accessed.
c. capping the contributions of higher earners at £240,000 gross a year.
d. taxing the death benefit if a pension member dies before age 75.
e. not allowing further contributions once a pension is in payment.

Answer 8

a. introducing a tapered reduction to the amount of the annual allowance for higher earners.
b. imposing a reduced annual allowance once a pension is accessed.

chapter reference 10B1

Question 9

Gemma, whose taxable income is £40,000 after deducting the personal allowance, has realised a chargeable gain of £20,000 on an onshore life policy. When calculating the taxation due on this gain, she:

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

a. must top-slice the gain by the number of years held to determine the rate of tax she will pay on the gain.
b. can take into account the personal savings allowance if it has not already been used up.
c. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.
d. can offset some of the gain by taking into account her capital gains tax annual exempt amount.
e. must pay income tax on the full gain at 40%.

Answer 9

b. can take into account the personal savings allowance if it has not already been used up.
c. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.

chapter reference 10G2G

Question 10

When considering the taxation of annuities:

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

a. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
b. a cash sum payable under a guaranteed annuity is fully taxable as investment income.
c. an annuity for a beneficiary under a will is taxed in full as savings income.
d. pension annuities are taxed in full as earned income.
e. purchased life annuities are taxed in full as earned income.

Answer 10

a. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
c. an annuity for a beneficiary under a will is taxed in full as savings income.
d. pension annuities are taxed in full as earned income.

chapter reference 10G4

Question 11

A client is considering making lifetime gifts of both business and non-business assets. What factors should they take into account?

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

a. Any gifts the recipients plan to make themselves.
b. The availability of holdover relief for gifts of business interests.
c. The availability of business relief on gifted assets.
d. The tax status of the client.
e. The tax status of the recipients.

Answer 11

b. The availability of holdover relief for gifts of business interests.
c. The availability of business relief on gifted assets.
d. The tax status of the client.

chapter reference 11E2C

Question 12

Charlotte is considering making a transfer into a discretionary trust for the benefit of her nieces. What are the inheritance tax implications of such a transfer?

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

a. Any inheritance tax payable will be the responsibility of her nieces.
b. A transfer into the trust in excess of Charlotte’s available nil rate band will be subject to the lifetime rate of 30%.
c. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
d. Any transfers into the trust will affect the availability of the nil rate band for any future chargeable lifetime transfers she may wish to make.
e. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte’s death.

Correct, chapter reference 11E2G

Answer 12

d. Any transfers into the trust will affect the availability of the nil rate band for any future chargeable lifetime transfers she may wish to make.
c. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
e. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte’s death.

chapter reference 11E2G

Question 13

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

Answer 13

c. £5,000.

chapter reference 1G2B

Question 14

Tomaz is taxed by his employer on £3,000 as a benefit in kind in relation to a van which he also uses outside work. What National Insurance contributions would be payable on this?

Select one:

a. His employer will pay £270 of class 1A contributions.
b. Tim will pay £270 of class 1 contributions.
c. His employer will pay £414 of class 1A contributions.
d. Tim will pay £414 of class 1 contributions.

Answer 14

c. His employer will pay £414 of class 1A contributions.

chapter reference 2B4

Question 15

Eva has made the following lifetime transfers: £210,000 into a discretionary trust in 2017, £500,000 into a bare trust in 2020, and £150,000 into a discretionary trust in 2021. The transfer[s] which resulted in an immediate lifetime IHT liability was[were]:

Select one:

a. the transfers made in 2017 and 2021.
b. the transfers made in 2020 and 2021.
c. all of the transfers.
d. only the transfer made in 2021.

Answer 15

d. only the transfer made in 2021.

chapter reference 4B3

Question 16

Steve was two weeks late filing his tax return. What penalty, if any, will HMRC charge him?

Select one:

a. £100, plus £5 penalty for each full week overdue.
b. £100, plus 5% for each full week overdue.
c. £100.
d. 5% of his final liability.

Answer 16

c. £100.

chapter reference 6A4

Question 17

Sue has a current personal pension fund value of £380,000. She has no form of transitional protection. In the event of her death before the age of 75, the maximum additional lump sum death benefit that can be paid from her other uncrystallised money purchase pensions without incurring a tax charge is:

Select one:

a. £693,100.
b. £598,100.
c. £675,000.
d. £1,055,000.

Answer 17

a. £693,100.

chapter reference 10B6

Question 18

Alex is a company director who has a salary of £45,000. What action would he take if he wants to minimise the income tax that he pays?

Select one:

a. Take dividends from his company instead of a salary.
b. Transfer the ownership of his private car to the company so that it is taxed as a benefit in kind.
c. Increase his pension contributions that are made by his employer.
d. Increase his salary to above the upper earnings limit.

Answer 18

a. Take dividends from his company instead of a salary.

chapter reference 11C2

Question 19

If Sanjeev wants to invest into an ISA for the first time, what eligibility criteria must he meet?

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

a. An individual aged 16 can invest in a stocks and shares ISA.
b. The cash invested in an ISA must belong to him.
c. A non-resident Crown employee working overseas can open an ISA.
d. A joint ISA can be arranged, but only between spouses or civil partners.
e. He must be resident in the UK.
f. He must be domiciled in the UK.

Answer 19

b. The cash invested in an ISA must belong to him.
c. A non-resident Crown employee working overseas can open an ISA.
e. He must be resident in the UK.

chapter reference 10C1A

Question 20

The life fund of Giorgio’s existing with-profits bond is taxed:

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

a. at 40% on offshore based assets, such as shares.
b. at 20% on any gains arising from the sale of assets from the fund.
c. but this tax cannot be reclaimed by Giorgio as a policyholder.
d. on dividend income from UK shares at 10%.
e. at 20% on property rental income.

Answer 20

b. at 20% on any gains arising from the sale of assets from the fund.
c. but this tax cannot be reclaimed by Giorgio as a policyholder.
e. at 20% on property rental income.

chapter reference 10G2A

Question 21

Jeremy’s investment portfolio has grown significantly and he has now set up a limited partnership special purpose vehicle. This would suggest that:

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

a. his objective is capital growth.
b. he is an experienced investor.
c. he wishes to invest for at least 10 years.
d. he is interested in the commercial property market.
e. he aims to create additional income.

Answer 21

a. his objective is capital growth.
b. he is an experienced investor.
d. he is interested in the commercial property market.

Question 22

John wants to invest £200,000 in a venture capital trust [VCT]. His income tax liability for 2021/22 is £50,000. What rules are applicable to John to qualify for the tax relief on his investment?

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

a. John is eligible for £60,000 income tax relief on his investment into the VCT.
b. Income tax relief is withdrawn if the shares are disposed of within five years, except if the disposal is to a spouse or civil partner.
c. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
d. John cannot defer capital gains by reinvesting in VCT shares.
e. Income tax relief is withdrawn on the death of an investor.

Answer 22

b. Income tax relief is withdrawn if the shares are disposed of within five years, except if the disposal is to a spouse or civil partner.
c. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
d. John cannot defer capital gains by reinvesting in VCT shares.

chapter reference 10L1

Question 23

Henna earns £60,000 and is increasing her pension contributions, which can have the effect of reducing:

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

a. her pension annual allowance.
b. the rate of income tax payable on her dividend income.
c. her income tax personal allowance.
d. the amount of income that falls into the higher-rate tax bracket.
e. the rate of capital gains tax payable on a gain realised in the same tax year.

Answer 23

b. the rate of income tax payable on her dividend income.
d. the amount of income that falls into the higher-rate tax bracket.
e. the rate of capital gains tax payable on a gain realised in the same tax year.

chapter reference 11D1

Question 24

When might it be advisable for James, who is married, to make full use of his nil rate band upon his death, rather than transfer it to his wife?

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

a. This is always a more effective strategy if he wishes to minimise an inheritance tax liability.
b. His wife’s first husband died having used none of his nil rate band.
c. Neither he nor his wife have been previously married and so cannot inherit a previous spouse’s unused nil rate band.
d. He expects any assets transferred to grow faster than the nil rate band.
e. He is concerned that his wife may need to go into care at some point.

Answer 24

b. His wife’s first husband died having used none of his nil rate band.
d. He expects any assets transferred to grow faster than the nil rate band.
e. He is concerned that his wife may need to go into care at some point.

chapter reference 11E2A

Question 25

Mark is considering making a potentially exempt transfer [PET] of property to a family member. What are the potential advantages of making such a transfer?

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

a. There is never a capital gains tax consequence on this type of transfer.
b. If Mark survives for seven years there will be no inheritance tax liability for the PET.
c. There is no lifetime charge on transfers over the nil rate band.
d. PETs are never subject to inheritance tax.
e. A PET will normally be a lifetime gift, but with the donor retaining control of the asset.

Answer 25

b. If Mark survives for seven years there will be no inheritance tax liability for the PET.
c. There is no lifetime charge on transfers over the nil rate band.

chapter reference 11E2C

Question 26

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. £8,000.
c. £12,500.
d. nil.

Answer 26

a. £4,500.

chapter reference 1G6G

Question 27

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

Answer 27

c. 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 28

Which disposal for CGT purposes is most likely to be regarded by HMRC to be at arm’s length?

Select one:

a. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week’s stay in Jamil’s villa.
b. Fred, who sold £50,000 worth of shares to his son for £38,000.
c. Marion, who gave an antique table worth £12,000 to her daughter.
d. Anna, who sold her mother’s antique engagement ring to her niece for scrap value.

Answer 28

a. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week’s stay in Jamil’s villa.

chapter reference 3B1

Question 29

Jack died on 20 May 2020 leaving his whole estate to his friend, Amanda. The estate was worth £400,000, on which tax of £30,000 was paid. Amanda died on 14 November 2021 with an estate worth £600,000, including the inheritance. How much IHT would be payable by Amanda’s sole beneficiary, her sister?

Select one:

a. £85,025.
b. £82,500.
c. £110,000.
d. £87,800.

Answer 29

d. £87,800.

chapter reference 4B4D

Question 30

Stan was previously UK resident but has worked for an overseas company for the last couple of years. He still spends a varying number of days in the UK each year. Under what circumstances would he be expected to show he has at least three ties to the UK in order for him to be considered a UK resident for tax purposes?

Select one:

a. If he were to spend between 46 and 90 days in the UK during a tax year.
b. If he spent less than 45 days in the UK during a tax year.
c. If he were to spend between 121 and 182 days in the UK during a tax year.
d. If he were to spend between 91 and 120 days in the UK during a tax year.

Answer 30

a. If he were to spend between 46 and 90 days in the UK during a tax year.

chapter reference 5A5

Question 31

Sanjay has been resident in the UK for the past 8 years but is non-UK domiciled. He is intending to remit funds to the UK to invest in an AIM listed company. For Sanjay to benefit from an exemption from the remittance rules the funds needs to be invested in the AIM listed company within:

Select one:

a. 183 days.
b. 30 days.
c. 45 days.
d. 90 days.

Answer 31

c. 45 days.

chapter reference 5D1

Question 32

Diarmud has received a dividend payment from shares he owns of an overseas company. The dividend is most likely to have been received:

Select one:

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

Answer 32

d. after the deduction of withholding tax.

chapter reference 9B1C

Question 33

Jim, a higher-rate taxpayer, has recently encashed his offshore fund which has reporting fund status making a gain of £10,000. Denys, a basic-rate taxpayer, has made the same gain on his offshore fund which does not have reporting status. Neither has made any other capital gains in this tax year. Who would pay more tax and by how much?

Select one:

a. Denys, by £2,000.
b. Jim, by £2,000.
c. Denys, by £4,000.
d. Jim, by £1,000.

Answer 33

a. Denys, by £2,000.

chapter reference 10E1/10E2

Question 34

£20,000 was invested in a UK single premium investment bond on 1 November 2020 and by 31 October 2021 it had fallen in value to £18,000. If a part surrender of £3,500 was taken on 31 October 2021, what, if anything, would be the chargeable gain?

Select one:

a. £1,500.
b. Nil.
c. £2,500.
d. £3,500.

Answer 34

c. £2,500.

chapter reference 10G2F

Question 35

Janice put a life policy into trust 5 years ago, with UK based trustees and beneficiaries. The policy incurred a chargeable event in the 2021/22 tax year and Janice subsequently died later in the tax year. How will the chargeable gain be taxed?

Select one:

a. Any gain would be treated as part of Janice’s income and any tax paid by the trustees can be recovered
b. The beneficiaries would be liable for any tax due, but can recover it from the trustees.
c. The trustees can choose who they want the tax liability to fall on.
d. The trustees would be liable for any tax due.

Answer 35

a. Any gain would be treated as part of Janice’s income and any tax paid by the trustees can be recovered

chapter reference 10I1

Question 36

Richard is UK domiciled and is married to Tammy who is non-UK domiciled. Assuming no election is made by Tammy and Richard died leaving his full nil rate-band, how much inheritance tax would be payable if his entire estate consisted of a £800,000 share portfolio which he left to Tammy in his will?

Select one:

a. £190,000.
b. £60,000.
c. £150,000.
d. Nil.

Answer 36

b. £60,000.

chapter reference 11E2A

Question 37

Felicity, who has not made any other lifetime gifts, made a potentially exempt transfer of £100,000 to her daughter in September 2021. The most appropriate life assurance policy for her to cover any potential inheritance tax liability on her estate would be a seven year:

Select one:

a. decreasing term assurance policy with an initial sum assured of £40,000.
b. level term assurance policy with a sum assured of £37,600.
c. level term assurance policy with a sum assured of £100,000.
d. decreasing term assurance policy with an initial sum assured of £100,000.

Answer 37

b. level term assurance policy with a sum assured of £37,600.

chapter reference 11E2C

Question 38

Ria has trading profits of £165,000 and also receives £6,000 salary as a non-executive director of a separate company. She pays £8,500 net into her personal pension. What is Ria’s income tax liability for 2021/22, rounded to the nearest pound?

Select one:

a. £61,910.
b. £59,254.
c. £58,735.
d. £59,785.

Answer 38

b. £59,254.

chapter reference 12A1

Question 39

Gary, Glen and David all have £40,000 each in gilts paying 3% gross interest per year. Gary has £8,000 pension income, Glen has £15,000 pension income and David has £55,000 pension income. They have no other income. When looking at their tax position:

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

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

Answer 39

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

chapter reference 9A3A

Question 40

Mo works as a director of his family owned business and he is looking to make pension contributions. He:

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

a. could make contributions in excess of the annual allowance but these will be subject to tax at the fixed rate of 40%.
b. can contribute 100% of his earned income, being under age 75, and receive tax relief.
c. can carry forward unused pension contributions from the previous 5 years to maximise his pension contributions.
d. can normally take a maximum of 25% of the fund as a tax-free lump sum.
e. could accumulate a sizeable pension fund but any fund in excess of the lifetime limit will be subject to a tax charge.

Answer 40

b. can contribute 100% of his earned income, being under age 75, and receive tax relief.
d. can normally take a maximum of 25% of the fund as a tax-free lump sum.
e. could accumulate a sizeable pension fund but any fund in excess of the lifetime limit will be subject to a tax charge.

chapter reference 10B1-4

Question 41

Mavis has an offshore investment that has reporting status. If she is a basic-rate taxpayer and expects to remain so after encashing the offshore investment, how will this be taxed?

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

a. She would not be able to offset any income against the dividend allowance.
b. The capital gains tax annual exempt amount could be used to offset any gain.
c. Any gains on encashment will be taxed at 32.5%.
d. Dividends will be taxed at 7.5%.
e. Any gains on encashment will be subject to capital gains tax at 10%.
f. Gains on encashment will be subject to income tax at 20%.

Answer 41

b. The capital gains tax annual exempt amount could be used to offset any gain.
d. Dividends will be taxed at 7.5%.
e. Any gains on encashment will be subject to capital gains tax at 10%.

chapter reference 10E1

Question 42

Brenda has been advised that she should consider investing in protected and guaranteed equity products, but she is concerned about the risk they represent. If she were to opt for a growth product:

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

a. her returns will be linked to the performance of a specific index.
b. performance is linked to the performance of all equities globally over the product term.
c. she is guaranteed a certain minimum return, typically her original capital.
d. she is guaranteed to receive a return in excess of that she could earn on deposit.
e. she will receive interest annually, but it is calculated daily.

Answer 42

a. her returns will be linked to the performance of a specific index.
c. she is guaranteed a certain minimum return, typically her original capital.

chapter reference 10F

Question 43

In what ways are structured products potentially useful to help mitigate inheritance tax [IHT] for someone with limited life expectancy?

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

a. Transfers to structured products are exempt from IHT if the donor is expected to have less than 12 months to live.
b. Beneficiaries will receive the full value of the structured product on maturity regardless of probate value.
c. The probate value of the investment could be less than the amount invested.
d. Growth on a structured product is always outside the investor’s estate.
e. Structured products can easily be encashed to pay an IHT bill.

Answer 43

b. Beneficiaries will receive the full value of the structured product on maturity regardless of probate value.
c. The probate value of the investment could be less than the amount invested.

chapter reference 10F2

Question 44

Irene took out a qualifying onshore endowment policy with a term of 10 years, which she made paid-up in year 7. This means she will become liable to tax on the proceeds:

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

a. at maturity.
b. on death before surrender.
c. upon settlement of a critical illness claim.
d. upon assigning a mortgage.

Answer 44

a. at maturity.
b. on death before surrender.

chapter reference 10G2C

Question 45

Frank, a company director, receives his sole income of £50,000 in the form of dividends from his business. From a taxation point of view, he:

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

a. could pay his wife, who doesn’t work in the business, dividends of up to £7,500 without any concern that HMRC will challenge this.
b. will be able to use the dividend allowance to reduce the income tax he pays on these dividends.
c. would pay 7.5% income tax on all of his dividend income.
d. would not be liable to National Insurance contributions

Correct, chapter reference 11B1B

e. would pay basic and higher-rate tax after taking account of the dividend allowance.

Answer 45

b. will be able to use the dividend allowance to reduce the income tax he pays on these dividends.
d. would not be liable to National Insurance contributions

chapter reference 11B1B

Question 46

Problems may occur when taking advantage of business relief [BR] and agricultural relief [AR]. These would include the fact that:

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

a. if company shares are transferred from a husband to wife, and then to the next generation within two years, they would not qualify for BR on the subsequent transfer.
b. BR would be lost when qualifying assets held by a deceased spouse are inherited by their surviving spouse.
c. BR increases the incentive to make lifetime gifts of family businesses.
d. BR would not be affected if a company chose to run down its business and instead invest surplus profits in the stock market.
e. some tenanted farmland may only qualify for 50% AR.

Answer 46

a. if company shares are transferred from a husband to wife, and then to the next generation within two years, they would not qualify for BR on the subsequent transfer.
e. some tenanted farmland may only qualify for 50% AR.

chapter reference 11E2E