Friday Five Focus on Taxation – 12 March – 5 Questions in 5 Minutes

Friday Five Focus on Taxation – 5 Questions in 5 Minutes Every Friday

What’s this all about?

Each week, we ask questions relating to one of these topics: Investments, Taxation, Pensions, Protection, or Regulation. This week, our Friday Five is relevant to Taxation; this is useful as you prepare for the CII’s R03 or AF1 exams. The challenge is for you to answer them in 5 minutes. Answers at the bottom of the page.

Questions

IMPORTANT! These questions relate to examinable tax year 2020/21, examinable by the CII until 31 August 2021.

1. Julian has an estate worth £3m. He regularly uses his annual exemption for Inheritance Tax but with his son setting up his own business wishes to make an outright gift to him of £500,000. Julian should be aware that:
   1. the transfer will be immediately charged to tax at 20% over the nil rate band.
   2. if he survives making the gift by at least 3 years, there will be a reduction in the IHT payable.
   3. if the gift to his son becomes chargeable, his personal representatives will be liable for the IHT due.
   4. he must report the amount of the gift to HMRC within 6 months of making it.

2. Phil is buying a residential property for £275,000 and has agreed with the seller that this includes £5,000 for carpets and curtains. How much Stamp Duty Land Tax is payable by Phil, who is a first-time buyer?
   1. £0
   2. £3,500
   3. £3,750
   4. £8,100

3. Martin and Suzanne are the trustees of a discretionary trust where the investment portfolio is made up mainly of equities. They are concerned with the capital gains tax (CGT) implications of any future disposals they make. Which of the following statements are correct? Tick all that apply.
   1. Trust gains are taxed at the threshold rates of 10% and 20%.
   2. Gains are calculated on the difference between the acquisition cost and the market value.
   3. Trustees can elect holdover relief on any disposal.
   4. If the settlor subsequently acquires an interest any holdover relief claimed when the trust was set up will be clawed back.

4. Which of the following statements regarding the annual tax charge for non-domiciled persons is true?
   1. Paying the annual tax charge on unremitted foreign income and gains allows the individual to remit other income and gains with no further liability.
   2. An individual can elect to pay tax on their worldwide income and gains for a specific tax year to avoid the annual tax charge.
   3. The annual tax charge is £30,000 for adults, resident in the UK for at least 12 tax years and who claim the remittance basis.
   4. The charge does not apply to unremitted income and gains of less than £3,000 in any tax year.

5. Joseph has been asked to be a trustee of a trust where there is no interest in possession. He has asked you what the implications of this are. You can tell him that: Tick all that apply.
   1. These trusts are usually known as bare trusts.
   2. There is no requirement for him to pay income to any particular beneficiary.
   3. A transfer into this type of trust is a potentially exempt transfer.
   4. If a beneficiary dies, there is no charge to IHT on their estate.
   5. The death of a beneficiary would trigger a potential IHT charge.

Answers

1. B – See R03 Study Text, Chp 4
   Grab our taster mock exam paper for CII R03. Click here to download.

2. A – See R03 Study Text, Chp 7
   Grab our taster mock exam paper for CII R03. Click here to download.

3. BCD – See R03 Study Text, Chp 3
   Grab our taster mock exam paper for CII R03. Click here to download.

4. B – See R03 Study Text, Chp 5
   Grab our taster mock exam paper for CII R03 Click here to download.

5. BD – See R03 Study Text, Chp 4
   Grab our taster mock exam paper for CII R03. Click here to download.

How did you find this week’s questions? Did you complete them in 5 minutes? Did you get them all correct? Do you disagree with any?

If you found this quiz useful for your CII exam revision, please do share it with your colleagues.