Tests 1-5 Flashcards
ABC Ltd has provided John, an employee, with rent-free accommodation. How will this benefit be taxed?
Select one:
a. There is generally a tax charge which John will have to pay.
b. There is a tax charge which both John and ABC Ltd will have to pay.
c. There is no tax liability for either John or ABC Ltd.
d. There is generally a tax charge which ABC Ltd will have to pay.
a. There is generally a tax charge which John will have to pay.
chapter reference 1G4A
Which individual will NOT be entitled to a personal allowance?
Select one:
a. Tord, who is a national of Norway.
b. Mary, who lives in Malta and is a widow of John who was a Crown servant.
c. Greg, who lives in the Isle of Man.
d. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.
d. Danielle, who is claiming the remittance basis, with unremitted worldwide income of £150,000.
chapter reference 1H1
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. £650.
b. £900.
c. £0.
d. £762.
c. £0.
chapter reference 1I1
If John earns £586 per week, how much could his income increase by before he reaches the upper earnings limit?
Select one:
a. £381.
b. £184.
c. £306.
d. £120.
a. £381.
chapter reference 2B2A
An immediate capital gains tax liability would definitely NOT arise when Stuart:
Select one:
a. sells the copyright to his new invention for £25,000 to his friend, Jake.
b. gives his coin collection, worth £40,000, to his son Michael.
c. makes a successful claim on his household insurance for accidental destruction of a valuable painting.
d. transfers half of his £50,000 unit trust holding to his wife, Lesley.
d. transfers half of his £50,000 unit trust holding to his wife, Lesley.
chapter reference 3A
Ian has sold an investment property. The sale was agreed on 25 February, the deposit was received on 12 March, the contract was signed on 30 March and the balance of the purchase price was received on 4 April. When did the disposal occur for capital gains tax purposes?
Select one:
a. 4 April.
b. 30 March.
c. 25 February.
d. 12 March.
b. 30 March.
chapter reference 3A1
Craig has sold an investment property, making a gain of £35,400. What will be the taxable gain once Craig’s capital gains tax annual exempt amount has been deducted?
Select one:
a. £22,900.
b. £23,700.
c. £23,100.
d. £23,400.
c. £23,100.
chapter reference 3C2
Robert gifted £4,000 in 2019/20 to his daughter Sue on her marriage, then gifted £1,500 in 2020/21 to his son George, and would like to gift some more money to his grandson Peter in the 2021/22 tax year. How much can he gift within his available inheritance tax annual exemption limit for lifetime transfers?
Select one:
a. £5,000.
b. £3,000.
c. £4,500.
d. £6,000.
c. £4,500.
chapter reference 4B1B/4B1E
Clive has inherited a business from his father. He has been advised that the business is NOT eligible for any business relief for inheritance tax purposes. This could be because:
Select one:
a. his father was a sole trader.
b. the majority of the inheritance consisted of property.
c. his father owned the business for only 18 months before he died.
d. the business was set up as a partnership.
c. his father owned the business for only 18 months before he died.
chapter reference 4C1
Rachel is an Irish citizen and is attending a 12 month university course in England. She intends to return home when she completes her course. For income tax purposes, Rachel is currently regarded as:
Select one:
a. temporarily domiciled in the UK.
b. resident in the UK.
c. non resident in the UK.
d. domiciled in the UK.
b. resident in the UK.
chapter reference 5A2
Michael is not currently resident in the UK. He has disposed of an investment property and has found that he is still liable for capital gains tax in the UK. This is because he moved away:
Select one:
a. four and a half years ago.
b. seven and a half years ago.
c. six and a half years ago.
d. five and a half years ago.
a. four and a half years ago.
chapter reference 5C2C
If each of these individuals who claim the remittance basis have received notification from HMRC that they will have to pay an annual tax charge, who will pay the highest amount?
Select one:
a. Maria, who has been resident in the UK for the last 11 years.
b. Stavros, who has been resident in the UK for the last 8 years.
c. Pierre, who has been resident in the UK for the last year.
d. Lorenzo, who has been resident in the UK for the last 14 years.
d. Lorenzo, who has been resident in the UK for the last 14 years.
chapter reference 5D2
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. £1,500.
b. £1,000.
c. £2,000.
d. £500.
a. £1,500.
chapter reference 6A4
- A 5% penalty is levied on any tax remaining unpaid more than 30 days after the balancing payment is due. If tax remains unpaid after a further five months then another 5% penalty is charged, and again where tax remains unpaid after a further six months (i.e. eleven months after the initial penalty date).
Gavin has just bought a new home in Kensington from personal funds for £4.5m. Assuming this is his only property, how much stamp duty land tax is payable on the purchase?
Select one:
a. £214,500.
b. £225,000.
c. £453,750.
d. £540,000.
c. £453,750.
chapter reference 7A1
Before any VAT, Samantha spends £60 on shoes and clothes for her grandchild, £600 on domestic fuel for her home heating system, and £400 to the crematorium for her mother’s funeral. How much VAT will she pay on these items?
Select one:
a. £120.
b. £212.
c. £30.
d. £200.
c. £30.
chapter reference 8A2B/ 8A2C/ 8A2D
Robert, a higher-rate taxpayer, has received a stock dividend to the value of £9,000. Assuming this is the only dividend payment he received, what does this mean and what is his tax liability on this stock dividend?
Select one:
a. Shareholders are offered the option of receiving discounted prices instead of a cash dividend and he has a liability of £2,275.
b. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,275.
c. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,925.
d. Shareholders are offered the option of receiving discounted prices instead of a cash dividend and he has a liability of £2,925.
b. Shareholders are offered the option of receiving new shares instead of a cash dividend and he has a liability of £2,275.
chapter reference 9B1A/9B1B
Under what circumstances might income received by a landlord from a letting be treated as trade income?
Select one:
a. Where the tenant is not connected in any way with the landlord.
b. Where the landlord provides substantial services in connection with the letting.
c. Where the landlord also lives within the same premises.
d. Where the tenant has signed a formal tenancy agreement.
b. Where the landlord provides substantial services in connection with the letting.
chapter reference 9C8
A tax charge may be triggered when a pension fund invests in which type of asset?
Select one:
a. Gilts.
b. Residential property.
c. Cash.
d. Commercial property.
b. Residential property.
chapter reference 10B8
Investment rules
A single set of rules applies to all types of pension scheme. Investments in residential property (with a few exceptions) and in tangible moveable assets - e.g. antiques, art, jewellery, and fine wine - may trigger penal tax charges. Borrowing to fund property purchase or any other investment cannot exceed 50% of the net value of the fund.
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 term of the policy is 8 years.
b. The policy is on a single life basis.
c. The policy was taken out in May 2013.
d. The premiums are £400 per month.
b. The policy is on a single life basis.
chapter reference 10G1
Qualifying life policies are broadly life policies with regular level premiums payable at least annually for at least ten years. For qualifying policies issued on or after 6 April 2013, an individual’s premiums accross all policies are restricted to £3,600 per year.
Jenny invested £100,000 into a non-qualifying UK life assurance investment bond on 1 August 2013. She took a partial withdrawal of £10,000 on 1 September 2015 and a further partial withdrawal of £16,000 on 1 March 2019. She surrendered the bond in June 2021 for £90,000. What chargeable gain, if any, did Jenny make on her investment?
Select one:
a. £16,000.
b. Nil.
c. £10,000.
d. £6,000.
a. £16,000.
chapter reference 10G2E
Bill is married and has taxable income after deduction of his personal allowance of £58,000 in 2021/22. He invested £20,000 into an onshore single premium life assurance bond on 31 October 2011, and for 10 years he took the maximum permitted withdrawals without triggering an immediate tax charge. On encashment on 14 November 2021 the policy is worth £22,000. For the purposes of calculating the tax due on encashment, he should be advised that:
Select one:
a. it may have been advantageous to assign the bond to his wife before encashment.
b. his personal savings allowance cannot be used.
c. top-slicing relief will reduce the tax charged on his gain.
d. a copy of the chargeable event certificate will be sent to HMRC.
a. it may have been advantageous to assign the bond to his wife before encashment.
chapter reference 10G2G/10G2I
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 UK dividend income.
b. As savings income.
c. As property income.
d. The payment will be ignored for tax purposes as it was below £100.
a. As UK dividend income.
chapter reference 10J3
Distributions from REITs consist of two elements:
1. A payment from the tax-exempt element.
- For individual investors, this is classed as property income and paid net of 20% tax.
- Non-taxpayers may reclaim the excess tax deducted.
- ISA investors receive payments gross.
2. A dividend payment from the non-exempt element.
- This is taxed as any other dividend.
Gains on REIT shares are subject to CGT in the normal way for investors.
Cormack is interested in having an exposure to international commercial property in his portfolio to provide potential gains and ongoing income, but has neither the time or the knowledge to buy directly. The most appropriate solution for him would be a[n]:
Select one:
a. insurance company property fund.
b. special purpose vehicle.
c. property security fund.
d. UK real estate investment trust.
c. property security fund.
chapter reference 10J5
Promoters of tax avoidance schemes must disclose their scheme to HMRC, primarily so that HMRC can:
Select one:
a. assess the risk to investors.
b. block unacceptable schemes through legislation.
c. inform the EU.
d. include the details on their information leaflets.
b. block unacceptable schemes through legislation.
chapter reference 11A4A
Graham, a higher-rate taxpayer, transfers £40,000 of shares to his civil partner Stuart, a non-taxpayer, who sells them making a gain of £20,000. If neither has any other realised gains, what tax liability is due on the transfer and then on the subsequent sale?
Select one:
a. The transfer is free from capital gains tax for Graham, and there is also no liability on the sale for Stuart.
b. The transfer is free from capital gains tax for Graham, and there is a £2,000 capital gains tax liability on the sale for Stuart.
c. The transfer is subject to 20% capital gains tax on gains in excess of the annual exempt amount, and there is a £770 capital gains tax liability on the sale for Stuart.
d. The transfer is free from capital gains tax for Graham, and there is a £770 capital gains tax liability on the sale for Stuart.
d. The transfer is free from capital gains tax for Graham, and there is a £770 capital gains tax liability on the sale for Stuart.
chapter reference 11B1A
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. £6,530.
b. £750.
c. £545.
d. £2,830.
c. £545.
chapter reference 11B2A
Child Tax Credit (CTC) has reen replaced by Universal Credit for most people making new claims. However, parents who already get Working Tax Credit (WTC) can add on a claim for CTC. This is simply reported as a change in circumstances.
Where CTC is already paid, or parents are able to add on a new claim, CTC is payable to parents with children living with them, aged under 16, or between 16 and 19 and in full-time education.
There are two elements to CTC, the family element and the child element. The standard amount of the family element is £545 in 2021/22 (but only if at least one child was born before 6 April 2017). The child element is payable per child and the standard amount is £2,845 in 2021/22. However, the child element is not given for a third (or subsequent) child born on or after 6 April 2017.
Keith and Jala are married with two children. Keith earns £48,000 and Jala earns £45,000. Which of these changes to Keith’s or Jala’s income would have the most impact on their entitlement to child benefit?
Select one:
a. Keith and Jala both receive a 5% annual pay increase.
b. Jala receives commission from her employer of £9,000, while Keith’s salary is increased to £50,000.
c. Keith receives a bonus from his employer of £7,000 while Jala’s remains unchanged.
d. They both start new jobs with different employers, each with a new salary of £50,000 pa.
c. Keith receives a bonus from his employer of £7,000 while Jala’s remains unchanged.
chapter reference 11B2B
David is a non-earner and pays £1,200 gross into his registered pension scheme. How much more can he pay net of tax into the pension scheme?
Select one:
a. £2,640.
b. £1,680.
c. £1,920.
d. £2,400.
c. £1,920.
chapter reference 11D1
Charlie is a tax adviser and is working with Tom and Mary on their inheritance tax planning. What is the first thing Charlie should advise Tom and Mary to do, before taking action to mitigate inheritance tax?
Select one:
a. Spread the assets among their relatives in order to maximise use of the tax free thresholds.
b. Ensure they have enough income and capital for the remainder of their lives.
c. Put as many of their assets as possible in trust.
d. Effect a life policy to pay the inheritance tax when it becomes due.
b. Ensure they have enough income and capital for the remainder of their lives.
chapter reference 11E2
Haris is 45 and has a salary of £52,000. He has a company car giving him a taxable benefit of £5,000. He pays interest of £1,500 on a loan to pay inheritance tax and £4,000 into a retirement annuity plan that doesn’t operate tax relief at source. What is his income tax liability for 2021/22?
Select one:
a. £8,832.
b. £10,300.
c. £8,032.
d. £13,060.
c. £8,032.
chapter reference 12A5A
Deb, age 57, has a gross income of £130,000 and she has made a net personal pension contribution of £10,000. What will her personal allowance be in 2021/22?
Select one:
a. £12,570.
b. £2,500.
c. £3,820.
d. £8,750.
c. £3,820.
chapter reference 12A5A
Maud is an 80 year-old widow. In 2021/22 she has pension income of £12,720, receives interest of £3,000 from her bank account and dividends of £1,500 from shares in the company she used to work for. What is her income tax liability for 2021/22?
Select one:
a. £930.
b. £630.
c. £30.
d. £160.
c. £30.
chapter reference 12A5A
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. £5,888.88.
c. £3,821.78
d. £4,316.38.
d. 4316.38
chapter reference 12A5B
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. £920.
b. £1,900.
c. £1,490.
d. £1,550.
c. £1,490.
chapter reference 12A5C
Peter, a bachelor, gifted a lump sum of £1,000,000 to his son Adam in February 2017. What would be the inheritance tax liability on this gift if Peter died in August 2021 leaving no residential property, assuming this was the only gift Peter had ever made?
Select one:
a. £267,600.
b. £162,000.
c. £160,560.
d. £270,000.
c. £160,560.
chapter reference 12A5D
If a tax free investment provided a fixed rate at 3.2% per annum, what gross rate would a higher-rate taxpayer need to receive from a taxable investment to earn an equivalent amount each year?
Select one:
a. 4%.
b. 5.33%.
c. 6.4%.
d. 4.26%.
b. 5.33%.
chapter reference 12B3A
Karen, 16, has two sisters: Joanne, 18, and Lisa, 21. They should be aware that:
Select one:
a. Joanne can invest more into ISAs this tax year than her sisters.
b. Karen and Joanne can invest more into ISAs this tax year than Lisa.
c. they can all invest the same maximum amount into ISAs this tax year.
d. Karen can invest more into ISAs this tax year than her sisters.
d. Karen can invest more into ISAs this tax year than her sisters.
chapter reference 12B3B
Doug disposes of some shares in May 2021, incurring a capital gains tax liability. He could defer some or all of this tax liability by investing the gains in an enterprise investment scheme, provided he does so between:
Select one:
a. May 2021 and May 2024.
b. May 2021 and May 2023.
c. May 2020 and May 2023.
d. May 2020 and May 2024.
d. May 2020 and May 2024.
chapter reference 12B4A
The gain must be reinvested in the period that starts one year before and ends three years after the disposal. The investor still has to pay CGT on the deferred gain when they dispose of the EIS shares.
On the encashment of a life assurance policy, what factor will have NO impact on whether tax is payable or, if it is, by what amount?
Select one:
a. How much capital gains tax annual exempt amount is available in the year of encashment.
b. How much top slicing relief is available.
c. The taxation regime of the underlying assets held within the life funds.
d. The tax position of the investor at the time they encash the policy.
a. How much capital gains tax annual exempt amount is available in the year of encashment.
chapter reference 12B5
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 for at least 105 days in a tax year. This can be averaged with other properties.
b. be situated in an acknowledged holiday resort.
c. be let to individuals who are on holiday only.
d. not be subject to ‘long term lets’ for more than 155 days in a tax year.
e. be let on a commercial basis.
f. be situated in the UK only.
a. be let for at least 105 days in a tax year. This can be averaged with other properties.
d. not be subject to ‘long term lets’ for more than 155 days in a tax year.
e. be let on a commercial basis.
chapter reference 9C12
Furnished holiday lettings are taxed like other lettings but qualify for certain tax advantages. To qualify as furnished holiday lettings:
- The accomodation must be situated in the UK or in the European Economic Area (EEA), and it must be furnished and let on a commercial basis.
- The accomodation must be available for commercial letting to the public, generally as holiday accomodation, for periods of at least 210 days in total in the tax year.
- The period in which the accomodation is actually let should be at least 105 days in total in the ta year. If this requirement is not met in respect of a given property in one year, an average can be taken over two or more properties, which may enable all to qualify. Another option is to make a period of grace election is a property has reached the occupancy threshold in previous year.
- The accomodation may be let for continuous periods of more than 31 days, but such periods must not total more than 155 days in the tax year.
- The property does not need to be in acknowledged holiday resort and the tenants do not actually have to be on holiday.
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. capping the contributions of higher earners at £240,000 gross a year.
b. taxing the death benefit if a pension member dies before age 75.
c. introducing a tapered reduction to the amount of the annual allowance for higher earners.
d. not allowing further contributions once a pension is in payment.
e. imposing a reduced annual allowance once a pension is accessed.
c. introducing a tapered reduction to the amount of the annual allowance for higher earners.
chapter reference 10B1
e. imposing a reduced annual allowance once a pension is accessed.
chapter reference 10B1
Julie is 17 and Sue is 23. They have each invested £2,000 into their ISAs, and both wish to invest more in the 2021/22 tax year. What are their options?
You must select ALL the correct options to gain the mark:
a. Julie can invest a further £27,000.
b. Julie can invest a further £18,000 but it must be in cash ISAs only.
c. Sue can invest a further £18,000.
d. Julie can only invest a further £7,000.
e. Sue can invest a further £18,000 but at least £9,000 of it must be in stocks and shares.
a. Julie can invest a further £27,000.
c. Sue can invest a further £18,000.
chapter reference 10C1C
A chargeable event for a non-qualifying life assurance policy occurs in the event of the:
You must select ALL the correct options to gain the mark:
a. surrender of the policy.
b. maturity of the policy.
c. policy being assigned to the policyholder’s spouse.
d. policy being assigned by way of mortgage to a bank.
e. death of the life assured.
f. payment of a critical illness benefit.
a. surrender of the policy.
b. maturity of the policy.
e. death of the life assured.
chapter reference 10G2C
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. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.
b. must pay income tax on the full gain at 40%.
c. can offset some of the gain by taking into account her capital gains tax annual exempt amount.
d. must top-slice the gain by the number of years held to determine the rate of tax she will pay on the gain.
e. can take into account the personal savings allowance if it has not already been used up.
a. may assume that 20% tax has already been paid in the fund and this amount can be deducted from any tax that is due.
e. can take into account the personal savings allowance if it has not already been used up.
chapter reference 10G2G
When considering the taxation of annuities:
You must select ALL the correct options to gain the mark:
a. pension annuities are taxed in full as earned income.
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. purchased life annuities are taxed in full as earned income.
e. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
a. pension annuities are taxed in full as earned income.
c. an annuity for a beneficiary under a will is taxed in full as savings income.
e. a deferred annuity is taxed as a purchased life annuity when the annuity is taken.
chapter reference 10G4
Annuities
Purchased life annuities - Partly taxed as savings income and partly tax free
Purchased annuities certain - Partly taxed as savings income and partly tax free
Pension annuities - Taxed in full as earned income
Deferred annuities - Taxed as a purchased life annuity when the annuity is taken
Annuities for beneficiaries under trusts or wills - Taxed in full as savings income
Meena has sold some shares making a gain of £50,000 and has an income tax liability of £30,000. She wishes to invest in an enterprise investment scheme [EIS]. What do you advise her to consider?
You must select ALL the correct options to gain the mark:
a. There may be pre-arranged exit provisions in order to minimise risk.
b. Meena will be able to invest £50,000 and receive income tax relief of £10,000.
c. Enterprise investment schemes are ideally suited for medium risk investors.
d. To eliminate her income tax liability completely, Meena would need to invest £100,000 in qualifying investments.
e. Meena can defer the capital gains tax due on up to 100% of the gain, and disposals of qualifying EIS shares are normally exempt from capital gains tax if held for three years.
f. Meena does need not to be resident in the UK, but must be liable to UK income tax.
d. To eliminate her income tax liability completely, Meena would need to invest £100,000 in qualifying investments.
e. Meena can defer the capital gains tax due on up to 100% of the gain, and disposals of qualifying EIS shares are normally exempt from capital gains tax if held for three years.
f. Meena does need not to be resident in the UK, but must be liable to UK income tax.
chapter reference 10K1
Manuel is self-employed and he is keen to minimise the income tax that he pays. He should be aware that:
You must select ALL the correct options to gain the mark:
a. the date on which he retires makes no difference to the tax liability of the business in the final year.
b. tax planning is normally carried out on an ongoing basis.
c. the choice of accounting date can make a difference to the timing of tax payments on his business profits.
d. typically, there is no advantage of undertaking tax planning at the end of the tax year.
b. tax planning is normally carried out on an ongoing basis.
c. the choice of accounting date can make a difference to the timing of tax payments on his business profits.
chapter reference 11B4
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. The availability of business relief on gifted assets.
b. The availability of holdover relief for gifts of business interests.
c. The tax status of the recipients.
d. The tax status of the client.
e. Any gifts the recipients plan to make themselves.
a. The availability of business relief on gifted assets.
b. The availability of holdover relief for gifts of business interests.
d. The tax status of the client.
chapter reference 11E2C
Marina has two grandchildren, Charles aged 10 and Ellie aged 19. She wishes to minimise the potential inheritance tax payable on two large gifts to them. What would be suitable types of trusts for her to use for lifetime inheritance tax planning?
You must select ALL the correct options to gain the mark:
a. Interest in possession trust for Ellie.
b. Bare trust for Ellie and a discretionary trust for Charles.
c. Bare trust for Charles and a discretionary trust for Ellie.
d. Individual bare trusts for both Charles and Ellie.
e. Discretionary trust for both Charles and Ellie.
a. Interest in possession trust for Ellie.
c. Bare trust for Charles and a discretionary trust for Ellie.
e. Discretionary trust for both Charles and Ellie.
chapter reference 11E2G
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. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
c. 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.
d. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte’s death.
e. A transfer into the trust in excess of Charlotte’s available nil rate band will be subject to the lifetime rate of 30%.
b. If the value of the trust exceeds the nil rate band, the trust will be subject to periodic charges.
c. 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.
d. Taper relief may be available on any inheritance tax due on the transfer in the event of Charlotte’s death.
chapter reference 11E2G
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. £9,000.
d. £7,500.
b. £5,000.
chapter reference 1G2B
Contribution toward capital cost
If the employee makes a contribution of up to £5,000 towards the capital cost of a car when it is first made available, the contribution is deducted from the list price of the car before calculating the benefit. Any excess over £5,000 is ignored.
The married couple’s allowance provides tax relief as a:
Select one:
a. lump sum payment.
b. extension of the individual’s threshold before they pay higher-rate tax.
c. deduction from the individual’s gross income.
d. deduction from the individual’s tax liability.
d. deduction from the individual’s tax liability.
chapter reference 1H4
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 £1,600 whilst Robert has a £3,200 tax liability.
b. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.
c. Peter has a tax liability of £800 whilst Robert has a £2,600 tax liability.
d. Peter has a tax liability of £975 whilst Robert has a £4,225 tax liability.
b. Peter has a tax liability of £600 whilst Robert has a £2,600 tax liability.
chapter reference 1I1
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. Tim will pay £414 of class 1 contributions.
d. His employer will pay £414 of class 1A contributions.
d. His employer will pay £414 of class 1A contributions.
chapter reference 2B4
Class 1A NICs are calculated on the value of benefits as determined for income tax purposes. For example, if the taxable benefit of a company car is £6,000 then class 1A NICs of £828 (£6,000 at 13.8%) will be due.
The valuations of an asset for capital gains tax purposes and for inheritance tax purposes are:
Select one:
a. never the same.
b. always the same.
c. not always the same.
d. very rarely the same.
c. not always the same.
chapter reference 3B3
A valuation for CGT is not always the same as a valuation for IHT. For CGT, it is the asset that is valued, whereas for IHT the relevant value is the loss the estate. For example, the value of private property shares may be very low for CGT purposes if they are a small proportion of the equity, but giving them away could result in a substantial reduction in the seller’s estate if the gift results in loss of control of the company. This gives the shares a much higher value for IHT purposes on the death of an individual, the same value must be used for CGT purposes, i.e. for the beneficiary’s acquisition cost.
Sharon sold an asset and made a substantial profit. However, the profit was NOT subject to capital gains tax because she sold:
Select one:
a. government bonds.
b. company shares listed on the FTSE.
c. a painting.
d. an investment property.
a. government bonds.
chapter reference 3C4
Government and most corporate bonds, and government-guaranteed securities, owned by individuals are exempt from capital gains tax.
Finlay has made a chargeable gain of £35,000 on the sale of some shares after utilising his capital gains tax annual exempt amount. If he has allowable losses from a previous tax year, these:
Select one:
a. must be offset first against gains made in the same tax year, but only to the extent that it brings the gain down to the annual exempt amount.
b. can be carried forward, but if it is not used to offset gains made in the same tax year, it can only be used in one other tax year, selected by HMRC.
c. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.
d. can be carried forward, but only if it is claimed. The loss must then be used within a 6 year period.
c. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.
chapter reference 3D4
Losses
Losses on disposals can be set against any gains in the same tax year.
- A loss must be set against gains of the same tax year even if this reduces the total gains to below the annual exempt amount.
Gerry wants to give some money to his daughter on her wedding day and wishes to utilise the various exemptions available to him so as to avoid any inheritance tax consequences. Assuming he has made no gifts at all to date, Gerry can give her:
Select one:
a. £5,000.
b. £8,500.
c. £11,000.
d. £11,250.
c. £11,000.
chapter reference 4B1B/4B1E
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. only the transfer made in 2021.
b. the transfers made in 2017 and 2021.
c. the transfers made in 2020 and 2021.
d. all of the transfers.
a. only the transfer made in 2021.
chapter reference 4B3
Seb is 9 and was born in Singapore to UK domiciled parents who have just established domicile in Australia. Seb is now:
Select one:
a. UK domiciled.
b. Singapore domiciled.
c. Australian domiciled.
d. able to choose his domicile.
c. Australian domiciled.
chapter reference 5B1
Carol was resident in the UK all of her life until June 2019 when she emigrated to Spain. She still has two properties in the UK, from which she receives rental income, and significant shareholdings from which she receives dividends. With any gains on the sale of these UK assets, she may avoid capital gains tax:
Select one:
a. on the shares if she does not return to the UK before June 2024.
b. on the properties if she sells them before she returns to the UK.
c. altogether if she never returns to the UK.
d. on the properties and the shares if she remains non-resident for at least 4 years.
a. on the shares if she does not return to the UK before June 2024.
chapter reference 5C2C
Mark is neither resident nor domiciled in the UK. He owns an office building in the UK, which he rents out. As far as UK tax is concerned, he may be liable for:
Select one:
a. income tax only on the rent from the office.
b. income tax on the rent from the office, capital gains tax on the sale of the property, and inheritance tax on the property on death.
c. income tax on the rent from the office, inheritance tax on death, but no capital gains tax on the sale of the property
d. inheritance tax only on death.
b. income tax on the rent from the office, capital gains tax on the sale of the property, and inheritance tax on the property on death.
chapter reference 5D4
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. 5% of his final liability.
c. £100, plus 5% for each full week overdue.
d. £100.
d. £100.
chapter reference 6A4
There is a fixed penalty of £100 for any return not submitted by 31 January.
Len, who is not a first-time buyer, purchases a house for £550,000. Assuming this is Len’s only property, how much stamp duty land tax must he pay?
Select one:
a. £16,500.
b. £17,500.
c. £22,000.
d. £11,000.
b. £17,500.
chapter reference 7A1
Quick-In Limited import goods from outside the EU on a regular basis. When must they pay the tax due on these goods?
Select one:
a. At the time of importing them, unless special arrangements exist.
b. At the end of every month.
c. At the end of each quarter.
d. Once the goods have been sold.
a. At the time of importing them, unless special arrangements exist.
chapter reference 8A5
Mike and Molly are married and have £60,000 that they wish to invest in a National Savings and Investments product. They could NOT invest the whole amount in:
Select one:
a. direct ISAs.
b. a direct saver account.
c. an investment account.
d. income bonds.
a. direct ISAs.
chapter reference 9A2
Tom, Dick and Harry have the same number of shares in XYZ plc, and have each just received a dividend of £3,000. Tom is a non-taxpayer, Dick is a basic-rate taxpayer and Harry is a higher-rate taxpayer. If none of them have received any other dividends:
Select one:
a. all three of them will definitely have some sort of tax liability on their dividends.
b. Harry will pay more than four times as much tax on his dividend compared to Dick.
c. Tom and Dick will pay the same amount of tax on the dividend.
d. all three of them will not have to pay any tax on their dividends.
b. Harry will pay more than four times as much tax on his dividend compared to Dick.
chapter reference 9B1A
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. £675,000.
b. £693,100.
c. £598,100.
d. £1,055,000.
b. £693,100.
Correct, chapter reference 10B6
The maximum lump sum death benefit that won’t give rise to a tax charge is the amount of lifetime allowance, i.e. £1,073,100 in 2021/22.
Frankie is 17 and pays £1,500 into a cash ISA whilst her sister Anne is 21 and pays £1,500 into a stocks and shares ISA. What is the maximum additional amount that they can personally pay into cash ISAs in total in 2021/22?
Select one:
a. £37,000.
b. £41,368.
c. £46,000.
d. £26,000.
c. £46,000.
chapter reference 10C1C
Why has Paul received a chargeable event certificate?
Select one:
a. He has an unpaid capital gains tax liability.
b. He has become a non-resident of the UK in this tax year.
c. He has made a chargeable gain on a life policy.
d. He has transferred some of his unit trust holding to his wife.
c. He has made a chargeable gain on a life policy.
Correct, chapter reference 10G2I
Whenever a chargeable event occurs and a gain arises, the life office has to issue a certificate to the policyholder:
- The certificate must contain specified information, including the amount of chargeable gain, to allow the policyholder to complete their self assessment tax return.
- A copy must be issued to HMRC if:
* the chargeable event was an assignment for money or money’s worth; or
* the amount of the gain, including any connected gain (e.g. via cluster policies) exceeded half of the basic rate limit (i.e. more than £18,850 in 2021/22).
- HMRC has the power to audit insurance company systems to check that they are producing the required certificates. These are regulations that specifiy the records that insurance companies must keep to allow HMRC to carry out those audits.
Sanjay is in good health and about to retire. He is looking for an annuity into which he can invest part of his tax free cash sum in order to generate additional income. Which type of annuity is he most likely to use to achieve this?
Select one:
a. Purchased life annuity.
b. Scheme pension.
c. Lifetime annuity.
d. Enhanced annuity.
a. Purchased life annuity.
chapter reference 10G4
What is the tax treatment of the income received from a purchased life annuity?
Select one:
a. The capital element will not be taxable, but the interest element is taxed as savings income.
b. The capital element will be taxable as pension income and the interest element will be taxable as savings income.
c. Both the capital and interest elements will be paid without any liability to tax providing the total payment is less than £12,570 per annum.
d. Both the capital and interest element will be taxed as savings income.
a. The capital element will not be taxable, but the interest element is taxed as savings income.
Correct, chapter reference 10G4A
XYZ have assets of £13m and qualify for the enterprise investment scheme [EIS]. What is the maximum amount they could raise under the EIS?
Select one:
a. £2m.
b. £10m.
c. £5m.
d. £3m.
d. £3m.
chapter reference 10K2
The company must have gross assets of not more than £15m before an investment, and no more than £16m after.
If Martin wishes to transfer some shares to his spouse to reduce the tax liability on a dividend payment, the transfer must be:
Select one:
a. absolute only.
b. for a minimum of 12 months.
c. unconditional only.
d. absolute and unconditional.
d. absolute and unconditional.
Correct, chapter reference 11B1
It must be pointed out that transfers of assets must be absolute and unconditional, meainig that the transferor spouse or partner must not have a future benefit from the transferred income or income-producing asset.
Ashwin is 10 years old and a non-taxpayer who has been given money by his mother. How much interest can this money earn tax-free per tax year?
Select one:
a. £12,500.
b. £9,000.
c. £100.
d. £3,600.
c. £100.
Correct, chapter reference 11B2
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. Increase his pension contributions that are made by his employer.
b. Take dividends from his company instead of a salary.
c. Increase his salary to above the upper earnings limit.
d. Transfer the ownership of his private car to the company so that it is taxed as a benefit in kind.
b. Take dividends from his company instead of a salary.
Correct, chapter reference 11C2
How long after a death do beneficiaries of a will have to enter into a deed of variation?
Select one:
a. Two years.
b. Eighteen months.
c. Six months.
d. Three years.
a. Two years.
Correct, chapter reference 11E1
A properly drafted will is always recommended. However, even if a will has not been drawn up in the most IHT-efficient way, the beneficiaries might be able to enter into a deed of variation within 2 years of the relevant death. This will not always be possible and several conditions must be met.
George, a millionaire, is UK domiciled but he is married to Olga who is non-UK domiciled. They have made wills leaving all of their estate to each other. All of these statements are correct, APART from:
Select one:
a. if Olga elects to be UK domiciled for IHT purposes there will be no tax on George’s death assuming he dies first.
b. if George dies first, there will only be a £325,000 spouse exemption since Olga is non-UK domiciled.
c. if George dies first, there will only be a £55,000 spouse exemption since Olga is non-UK domiciled.
d. Olga’s personal representatives can elect within two years of her death for her to be treated as UK domiciled.
c. if George dies first, there will only be a £55,000 spouse exemption since Olga is non-UK domiciled.
Correct, chapter reference 11E2A
If Rebecca makes her first ever lifetime transfer and incurs an immediate inheritance tax liability, she will have made a transfer into a:
Select one:
a. discretionary trust of £325,000.
b. bare trust of £370,000.
c. bare trust of £325,000.
d. discretionary trust of £370,000.
d. discretionary trust of £370,000.
Correct, chapter reference 11E2D
Mr Humphries is 47 and has a salary of £33,520. He has a company car giving him a benefit of £3,000. He pays interest of £1,500 on loan to pay inheritance tax and £2,500 into a retirement annuity plan that doesn’t operate tax relief at source. What is his income tax liability for 2021/22?
Select one:
a. £3,390.
b. £4,490.
c. £4,290.
d. £3,990.
d. £3,990.
chapter reference 12A5A
Emily is 35 and single. She has a salary of £37,570 and a company car, the value of which for tax purposes is £3,500 in 2021/22. How much of her income will be taxed at the basic rate?
Select one:
a. £34,500.
b. £25,000.
c. £29,150.
d. £28,500.
d. £28,500.
chapter reference 12A5A
Lucy is 77 and has never married. In 2021/22 she has pension income of £10,500 and receives interest of £6,000 from her savings account. What is the highest rate of tax that she is liable for on her current level of savings income?
Select one:
a. 40%.
b. 20%.
c. 10%.
d. 0%.
d. 0%.
Correct, chapter reference 12A5A
Phil is 45 and employed. What is his National Insurance contribution liability if he earns £1,050 per week?
Select one:
a. £95.62 per week.
b. £93.96 per week.
c. £103.92 per week.
d. £92.30 per week.
a. £95.62 per week.
Correct, chapter reference 12A5B
Imran sold two share holdings in the current tax year. The first realised £100,000 having been purchased for £35,000. The second realised £40,000 having been inherited at a value of £60,000. The disposal costs for each were £500. Assuming he had no further losses and made no other capital gains during the tax year, what would be his taxable gain?
Select one:
a. £31,700.
b. £31,200.
c. £32,700.
d. £33,000.
a. £31,700.
chapter reference 12A5C
Peter is a widower who has made no lifetime transfers and he has lived in a care home since the passing of his wife. He died in 2021/22 with an estate of £600,000. He left a picture worth £40,000 to the National Gallery and split the rest of his estate equally amongst his four nephews. Peter’s deceased wife’s IHT nil rate band was fully used at the time of her death. What is the IHT due on Peter’s estate?
Select one:
a. £94,000.
b. £110,000.
c. £84,600.
d. £99,000.
c. £84,600.
Correct, chapter reference 12A5D
Jake, 22, invested £4,000 into a flexible cash ISA in May 2021. He withdrew £2,000 in July 2021. What is the maximum amount that he can invest into the account in the remainder of the 2021/22 tax year?
Select one:
a. £16,000.
b. £14,000.
c. £18,000.
d. £17,000.
c. £18,000.
Correct, chapter reference 12B3B
Gregory, a higher-rate taxpayer, is contemplating a £40,000 investment into a venture capital trust [VCT]. If he did so:
Select one:
a. he will receive 20% tax relief on his investment and can ‘defer’ gains from another investment into the VCT.
b. he will receive 30% tax relief on his investment and can ‘defer’ gains from another investment into the VCT.
c. his dividends will not be liable to any tax and any gains on his investment would be exempt from capital gains tax.
d. his investment will be very liquid and he will be taxed at 32.5% on any dividends he receives.
c. his dividends will not be liable to any tax and any gains on his investment would be exempt from capital gains tax.
Correct, chapter reference 12B4C
In order to avoid paying any personal tax on encashment of a qualifying policy with a premium paying term of 12 years, for what minimum period of years must the policy be held?
Select one:
a. 10.
b. 7.5.
c. 9.
d. 12.
c. 9.
Correct, chapter reference 12B5D
There is no personal tax on the maturity or encashment of a qualifying policy that an investor has held for at least 10 years or three-quarters of the premium paying term, if that is less. Nevertheless, because of the tax treatment of the underlying fund, it does not achieve the tax efficiency of an ISA for a basic-, higher- or additional-rate taxpayer.
Klaus is non-UK domiciled but has been a UK resident for tax purposes for 13 out of the past 14 years. He currently receives significant income in Germany on an unremitted basis but he is reconsidering this. If he changed to a remittance basis, he would:
Select one:
a. receive it free of charge and could keep his personal allowance.
b. receive it free of charge but would lose his personal allowance.
c. have to pay £60,000 each tax year he wishes to use it and would lose his personal allowance for that year.
d. have to pay £30,000 each tax year he wishes to use it but would keep his personal allowance.
c. have to pay £60,000 each tax year he wishes to use it and would lose his personal allowance for that year.
Correct, chapter reference 12B6B
Clive owns some company shares, which he bought with an expectation of dividends and capital growth. Assuming he achieves this goal, how will his investment be taxed?
You must select ALL the correct options to gain the mark:
a. Capital gains tax may apply to any profit on the sale of the shares.
b. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
c. If Clive is a basic-rate taxpayer he has no further tax liability in respect of the dividend income.
d. Losses on the sale of shares can be offset against other capital gains tax liabilities.
e. Clive receives a tax credit in addition to his dividend.
a. Capital gains tax may apply to any profit on the sale of the shares.
b. Clive has a £2,000 dividend allowance that he can use regardless of his tax status.
d. Losses on the sale of shares can be offset against other capital gains tax liabilities.
Correct, chapter reference 9B1
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. He must be domiciled in the UK.
b. An individual aged 16 can invest in a stocks and shares ISA.
c. The cash invested in an ISA must belong to him.
d. A joint ISA can be arranged, but only between spouses or civil partners.
e. He must be resident in the UK.
f. A non-resident Crown employee working overseas can open an ISA.
c. The cash invested in an ISA must belong to him.
e. He must be resident in the UK.
f. A non-resident Crown employee working overseas can open an ISA.
Correct, chapter reference 10C1A
Mario, a higher-rate taxpayer, invested £20,000 in 2011 in a non-reporting offshore fund. The current value is £45,000 and he is considering realising his investment. What are the most appropriate issues that Mario should consider before encashment?
You must select ALL the correct options to gain the mark:
a. Mario will have a £25,000 gain with a £5,000 income tax liability.
b. Mario will have a £25,000 gain with a £10,000 income tax liability.
c. If Mario assigned the non-reporting fund to his wife [a basic-rate taxpayer], the income tax liability would be £5,000.
d. Mario will be able to deduct the capital gains tax annual exempt amount.
e. Splitting the encashment over two tax years will reduce his overall tax liability.
b. Mario will have a £25,000 gain with a £10,000 income tax liability.
c. If Mario assigned the non-reporting fund to his wife [a basic-rate taxpayer], the income tax liability would be £5,000.
chapter reference 10E2
The life fund of Giorgio’s existing with-profits bond is taxed:
You must select ALL the correct options to gain the mark:
a. on dividend income from UK shares at 10%.
b. at 20% on any gains arising from the sale of assets from the fund.
c. at 40% on offshore based assets, such as shares.
d. but this tax cannot be reclaimed by Giorgio as a policyholder.
e. at 20% on property rental income.
b. at 20% on any gains arising from the sale of assets from the fund.
d. but this tax cannot be reclaimed by Giorgio as a policyholder.
e. at 20% on property rental income.
Correct, chapter reference 10G2A
The taxation of the life fund is complex. In summary:
- Essentially, the fund pays tax at 20% on interest income, property rental income and offshore income gains. UK dividends are generally exempt from tax.
- If the fund sells any assets at a profit, it pays tax on any gain at 20% (with no relief given for inflationary increases arising from January 2018 onwards as a result of indexation allowance being frozen at December 2017).
- These taxes are paid directly by the life office, so not involve the policy holder and cannot be reclaimed by any policy holder
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 aims to create additional income.
c. he is an experienced investor.
d. he is interested in the commercial property market.
e. he wishes to invest for at least 10 years.
a. his objective is capital growth.
c. he is an experienced investor.
d. he is interested in the commercial property market.
Correct, chapter reference 10J1
In order to be exempt from corporation tax, a real estate investment trust must ensure that:
You must select ALL the correct options to gain the mark:
a. a minimum of 25% of rental income must be retained within the fund.
b. a minimum of 75% of its gross profits must derive from rents.
c. a minimum of 80% of rental income must be distributed to investors.
d. at least 50% of the assets must be used to purchase commercial property.
e. rental profits must exceed loan interest charges by at least 25%.
f. a minimum of 90% of rental income must be paid as a dividend to investors.
b. a minimum of 75% of its gross profits must derive from rents.
e. rental profits must exceed loan interest charges by at least 25%.
f. a minimum of 90% of rental income must be paid as a dividend to investors.
chapter reference 10J3
Real estate investment trusts (REITs) are investment companies that are tax-transparent investment vehicles that enable investors to put their money into the commercial and residential property markets simply by buying shares in them.
REITs have to be UK tax resident and structered as closed-ended companies listed on a recognised stock exchange (including AIM). To be exempt from corporation tax, several conditions must be satisfied, including that at least 75% of the company’s total gross profits have to originate from property letting, and interest on borrowing has to be at least 125% covered by rental profits.
At least 90% of the rental profits from each accounting period must be paid as a dividend to investors within twelve months on the end of the accounting period if REIT status is to be maintained.
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. 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.
b. John cannot defer capital gains by reinvesting in VCT shares.
c. Income tax relief is withdrawn on the death of an investor.
d. John is eligible for £60,000 income tax relief on his investment into the VCT.
e. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
a. 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.
b. John cannot defer capital gains by reinvesting in VCT shares.
e. John will be able to receive dividends on VCT investments of up to £200,000 per year tax free.
chapter reference 10L1
What strategies might an individual, who is not a company director, consider in order to minimise their National Insurance contributions?
You must select ALL the correct options to gain the mark:
a. Increase the amount the employer pays into a pension scheme by salary sacrifice.
b. Being paid more by way of salary and less in the form of a lump sum bonus.
c. Taking dividends instead of salary from a company in which they work and hold shares.
d. Taking salary instead of dividends from a company in which they work and hold shares.
e. Being paid less by way of salary and more in the form of a lump sum bonus.
a. Increase the amount the employer pays into a pension scheme by salary sacrifice.
c. Taking dividends instead of salary from a company in which they work and hold shares.
chapter reference 11C2
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. the amount of income that falls into the higher-rate tax bracket.
b. her income tax personal allowance.
c. the rate of income tax payable on her dividend income.
d. the rate of capital gains tax payable on a gain realised in the same tax year.
e. her pension annual allowance.
a. the amount of income that falls into the higher-rate tax bracket.
c. the rate of income tax payable on her dividend income.
d. the rate of capital gains tax payable on a gain realised in the same tax year.
chapter reference 11D1
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. Neither he nor his wife have been previously married and so cannot inherit a previous spouse’s unused nil rate band.
b. This is always a more effective strategy if he wishes to minimise an inheritance tax liability.
c. He expects any assets transferred to grow faster than the nil rate band.
d. He is concerned that his wife may need to go into care at some point.
e. His wife’s first husband died having used none of his nil rate band.
c. He expects any assets transferred to grow faster than the nil rate band.
d. He is concerned that his wife may need to go into care at some point.
e. His wife’s first husband died having used none of his nil rate band.
Correct, chapter reference 11E2A
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. A PET will normally be a lifetime gift, but with the donor retaining control of the asset.
b. There is never a capital gains tax consequence on this type of transfer.
c. PETs are never subject to inheritance tax.
d. There is no lifetime charge on transfers over the nil rate band.
e. If Mark survives for seven years there will be no inheritance tax liability for the PET.
d. There is no lifetime charge on transfers over the nil rate band.
e. If Mark survives for seven years there will be no inheritance tax liability for the PET.
chapter reference 11E2C
