Topic 4

Question 1

Which one of the following is normally exempt from capital gains tax on disposal?

A. A holiday home
B. Shares in UK companies
C. A unit trust
D. An antique table worth £5,000

Answer 1

D. An antique table worth £5,000

Question 2

Which one of the following statements in respect of capital gains tax (CGT) is correct?

A. Chargeable assets held within and outside the UK may be subject to CGT on disposal.

B. Premium Bond and Lottery winnings are subject to CGT because they are classed as unearned income.

C. The annual exemption allowance may be carried forward to be used in a later tax year.

D. CGT may be payable on a deceased’s estate in addition to inheritance tax.

Answer 2

A. Chargeable assets held within and outside the UK may be subject to CGT on disposal.

Question 3

Suzy bought an antique Chinese vase in 1985 and recently sold it at an auction at a profit. Which one of the following will she NOT be able to offset against any liability to capital gains tax’?

A. The cost of acquiring the vase in 1985
B. The cost of a repair to a hairline crack
C. Advertising costs
D. The auctioneer’s commission for the sale

Answer 3

B. The cost of a repair to a hairline crack

Question 4

Matthew recently sold some unit trusts and made a taxable gain of £6,700. His taxable income for this tax year is £20,000. How much capital gains tax is he required to pay?

A. £1,840
B. £1,340
C. £670
D. Nil

Answer 4

C. £670

Question 5

Which one of the following transactions could be subject to capital gains tax?

A. An antique bought by an individual for £20,000 and sold for a profit

B. A painting bought by a self-employed dealer for £20,000 and sold for a profit

C. An insurance bond bought for £20,000 and surrendered by the original investor at a profit

D. Government stocks bought for £20,000 and sold at a profit

Answer 5

A. An antique bought by an individual for £20,000 and sold for a profit

Question 6

Which one of the following disposals may incur a liability to capital gains tax at the time of disposal?

A. A UK resident selling his holiday home in Spain for a profit

B. Transfers between spouses who are living together

C. Disposals to recognised charities

D. The deemed disposal of assets on an individual’s death

Answer 6

A. A UK resident selling his holiday home in Spain for a profit

Question 7

What exactly are ‘allowable deductions’ in the calculation of capital gains tax liability?

A. Government fixed allowances against capital gains tax liability

B. The annual exemption limit only

C. Costs incurred in acquiring, enhancing and disposing of an asset

D. The annual exemption limit and the indexation allowance

Answer 7

C. Costs incurred in acquiring, enhancing and disposing of an asset

Question 8

What is the position when a capital loss is made on disposal of an asset?

A. It is not relevant to capital gains tax calculations

B. It must be carried forward to the next tax year to offset against future capital gains

C. It can be offset initially against gains made in the year the loss occurred

D. It should be carried back to the previous year

Answer 8

C. It can be offset initially against gains made in the year the loss occurred

Question 9

A capital gains tax liability could arise in which of the following circumstances?

A. A corporation sells some of its investments

B. A partnership’s daily trading

C. A public limited company’s daily trading

D. Disposal of assets upon the retirement of a sole trader

Answer 9

D. Disposal of assets upon the retirement of a sole trader

Question 10

Which of the following assets would be exempt from capital gains tax

A. A piece of personal jewellery valued at £20,000

B. A Spanish property used for holiday visits

C. Euros held for use on foreign holidays

D. Shares purchased on the UK stock market

Answer 10

C. Euros held for use on foreign holidays

Question 11

In May 2016 Peter made a gift of £100,000 to his son Paul. Peter died in June 2019 leaving an estate of £350,000. Which IHT rate is applicable to the gift?

A. 0%
B. 24%
C. 32%
D. 40%

Answer 11

C. 32%

Question 12

Julian died in May leaving an estate valued at £350,000. Having made NO gifts or transfers previously he now left half his estate to his son and half to his wife. What was the inheritance tax liability?

A. Nil
B. £43,200
C. £30,000
D. £140,000

Answer 12

A. Nil

Question 13

On which one of the following would inheritance tax be charged at 40%?

A. The total value of the deceased’s estate

B. The amount of the chargeable estate above the threshold

C. The full value of the estate after an individual domiciled in the UK dies intestate

D. The value of the estate that remains after the proportion due to the deceased’s spouse has been deducted

Answer 13

B. The amount of the chargeable estate above the threshold

Question 14

A potentially exempt transfer is best described as:

A. a small gift not exceeding £250, made during an individual’s lifetime.

B. a transfer with deferred inheritance liability provided it is made more than 7 years before death.

C. any transfer of any amount between spouses.

D. a transfer that bears no immediate charge to inheritance tax irrespective of the amount of transfer.

Answer 14

D. a transfer that bears no immediate charge to inheritance tax irrespective of the amount of transfer.

Question 15

When is the tax due to be paid following a ‘chargeable lifetime transfer’?

A. Immediately
B. After 6 years
C. After 7 years
D. Following the death of the donor

Answer 15

A. Immediately

Question 16

If an individual is domiciled in the UK at the time of death, his estate for inheritance tax purposes would include all assets:

A. in the UK only
B. in the EC only
C. in countries with a double taxation agreement with the UK only
D. wherever situated

Answer 16

D. wherever situated

Question 17

For VAT purposes, businesses that charge fees for giving advice on insurance and pensions contracts are:

A. exempt
B. zero rated
C. subject to half the normal rate of VAT
D. subject to the normal rate of VAT

Answer 17

D. subject to the normal rate of VAT

Question 18

Which one of the following is NOT zero-rated from VAT?

A. Meals in restaurants
B. Food in supermarkets
C. Children’s clothing
D. Supplies of medicine

Answer 18

A. Meals in restaurants

Question 19

Which one of the following businesses does NOT have exemption from VAT on its supplies?

A. Doctors
B. Opticians
C. Dentists
D. Accountants

Answer 19

D. Accountants

Question 20

Robert bought some ordinary shares in August costing £100,000. How much stamp duty reserve tax did he have to pay?

A. £2,000
B. £1,500
C. £500
D. £1,000

Answer 20

C. £500

Question 21

What is the stamp duty reserve tax due on a purchase of bearer instruments with a market value of £100,000?

A. £500
B. £1,000
C. £1,500
D. £2,000

Answer 21

C. £1,500

Question 22

What rate of withholding tax is levied on non-resident entertainers and sportsmen and women in the UK?

A. 22%
B. 20%
C. 40%
D. 25%

Answer 22

B. 20%

Question 23

In the event of a transfer on death, where will any liability for inheritance tax payment fall?

A. On the donor
B. On the deceased’s spouse or next of kin
C. On the deceased’s estate
D. On the deceased’s life assurance company

Answer 23

C. On the deceased’s estate

Question 24

Assuming the current annual gift allowance for inheritance tax purposes remains at £3,000, what exemption would be allowed in year four if the individual did NOT make use of the exemption in the preceding three years?

A. None
B. £3,000
C. £6,000
D. £12,000

Answer 24

C. £6,000

Question 25

Which one of the following would NOT be considered a liability when calculating an individual’s estate at death?

A. Mortgages
B. Hire purchase
C. Loans
D. Jointly held assets

Answer 25

D. Jointly held assets