TOPIC 4 - UK taxation II

Question 1

By when must capital gains tax normally be paid on disposal of an asset?

a) In two instalments on 31 January and 31 July following the end of the tax year in which the gain is made.

b) On 31 July following the end of the tax year in which the gain is made.

c) On 31 January following the end of the tax year in which the gain is made.

d) By the end of the tax year in which the gain is made.

Answer 1

c) On 31 January following the end of the tax year in which the gain is made.

Question 2

Which of the following would not be subject to corporation tax?

a) A football club.

b) Limited liability partnership.

c) A small limited company.

d) A housing association.

Answer 2

b) Limited liability partnership.

Question 3

Ashok made a potentially exempt transfer in January 2020, but died in November 2024. What percentage of the IHT on the gift would be payable?

a) 20%.

b) 40%.

c) 60%.

d) 100%.

Answer 3

c) 60%.

Question 4

Dan left £93,000 to his son on his death, leaving the balance of his estate to his wife Joan. At the time of his death the IHT nil-rate band was £310,000. When Joan died, she left her entire estate of £800,000 to their son, having not made any other gifts previously. On Joan’s death the IHT nil-rate band was £325,000. How much of Joan’s estate would be subject to IHT?

a) £150,000.

b) £247,500.

c) £475,000.

d) £542,000.

Answer 4

b) £247,500.

Dan used 30% of his nil rate band, so Joan inherits 70% uprated to the nil rate bad at the time of her deaths.
£325,000 x 170% = £552,500.
£800,000 - £552,500 leaves £247,500 of her estate liable to IHT.

Question 5

Which of the following is true in relation to the residence nil-rate band (RNRB)?

a) Any unused RNRB cannot be transferred to a spouse on death.

b) The RNRB is reduced if the value of the estate exceeds £1m.

c) It applies to property left to the spouse or direct descendants of the deceased.

d) It is available even if the deceased never lived in the property.

Answer 5

c) It applies to property left to the spouse or direct descendants of the deceased.

Question 6

Alan owns shares in a small company that has share capital of £200,000, and now wants to sell them. In order to be able to claim business asset disposal relief, Alan’s shareholding must be worth at least:

a) £5,000.

b) £10,000.

c) £50,000.

d) £100,000.

Answer 6

b) £10,000.

Alan must own at least 5% of the firm’s share capital to be able to claim business asset disposal relief.

Question 7

Karen made a loss of £5,000 when she sold some shares, but did not make any other gains in the tax year. Assuming the capital gains tax exemption was £12,300 for that tax year, what is the total amount she could carry forward to use against gains in the following tax year?

a) £2,500.

b) £5,000.

c) £12,300.

d) £17,300.

Answer 7

b) £5,000.

Question 8

Which of the following would not be exempt or zero-rated for VAT?

a) Domestic water.

b) Financial advice.

c) Children’s clothes.

d) Books.

Answer 8

b) Financial advice.

Question 9

Clare and Clive are getting married. Their parents and grandparents have agreed to give them money as a wedding gift. How much could they receive without causing any tax problems for themselves or anyone else?

a) £10,000.

b) £20,000.

c) £40,000.

d) £80,000.

Answer 9

c) £40,000.

Each has 2 parents x £5,000 = £10,000, plus 4 grandparents x £2,500 = £10,000, so Clare and Clive can receive a total of £20,000 each as wedding gifts from their parents and grandparents.

Question 10

Gains from which of the following would be exempt from capital gains tax?

a) Unit trusts.

b) Shares.

c) Corporate bonds.

d) Holiday home.

Answer 10

c) Corporate bonds.

Question 11

Melanie bought a painting in a charity shop for £40. It turned
out to be by a well known artist, and she sold it three years
later for £2,000. She had to pay CGT on the gain she made.
True or false?

Answer 11

False no CGT up to £6,000

Question 12

For how many years can the annual exempt amount for CGT be
carried forward?

Answer 12

Nil. The CGT annual exempt amount cannot be carried forward at all.

Question 13

To qualify for roll over relief, a business must replace an asset
not more than five years from the date of disposal. True or
false?

Answer 13

False, 3 years after the date of disposal.

Question 14

Inheritance tax would be charged on which of the following?
a) The total value of the deceased’s estate.
b) The total value of the estate above the available nil rate band.
c) The value of the estate less any gifts that have been made
in the previous seven years.

Answer 14

b) The total value of the estate above the available nil rate band.

Question 15

Tax on a chargeable lifetime transfer in excess of the available
nil rate band is payable:
a) immediately, at the full rate.
b) only if the transferor dies within seven years of the transfer.
c) immediately, at a reduced rate.

Answer 15

c) immediately, at a reduced rate.

Question 16

What kind of tax is payable when shares are purchased
electronically?

Answer 16

Stamp duty reserve tax

Question 17

Sanjay, a basic rate taxpayer with taxable income of £12,000,
purchased UK listed company shares for £11,300 in May 2015.
He sold them for £25,400 in August 2021. He has no other
gains or losses (current or carried forward) in the tax year
2021/22. Ignoring any costs, calculate his capital gains tax
liability assuming an annual exempt amount of £6,000 and a
basic rate of 10%.

Answer 17

£25,400 - £11,300 - £6,000 exemption = £8,100 x 10% = £810

Question 18

Sarah, a basic rate taxpayer with taxable income of £17,000,
bought some shares in May 2016 for £15,000 and sold them in
October 2016 for £10,100, making her a loss of £4,900 in the
tax year 2016/17. She made no gains in the same tax year. In the
current tax year she sold her holiday flat in Devon, which made
her a profit of £47,600. She had spent £14,000 on renovations,
and it cost her £3,500 in estate agent’s commission to sell it.
Calculate the capital gains tax due for the current tax year
assuming an annual exempt amount of £12,300 and a rate of
18% for gains on residential property.

Answer 18

Gain £47,600
- £4,900 (previous year’s loss)
- £6,000 exemption
- £14,000 renovations
- £3,500 estate agents = £19,200 + 18% (tax on residential gain) = £3,456

Question 19

9) Luis sold his house, which has been his main residence since
he bought the house in 2020, and downsized to a one bedroom
flat, making a gain of £325,000. Is the capital gain made from
this sale eligible for private residence relief?
a) Yes, because the house was Luis’s main residence the
gain from the property’s sale will be eligible for private
residence relief.
b) No, because Luis has not lived in the house long enough to
qualify for private residence relief.
c) We do not have enough information to decide if the gain is
eligible for private residence relief or not.

Answer 19

c) We do not have enough information to decide if the gain is
eligible for private residence relief or not.

Question 20

10) A company makes an annual profit of £1.2m. When would the
company’s corporation tax normally be payable?

Answer 20

Nine months at the end of the relevant accounting period.