Friday Five Focus on Taxation – 13 October – 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 2023/24, examinable by the CII until 31 August 2024.

1. Adrian transferred assets worth £150,000 into a trust, in which he has no interest. If he had sold the assets, he would have made a gain of £40,000. If holdover relief was claimed what effect would it have on the trust?
   1. Holdover relief is not available as the value of the gift is below the nil rate band.
   2. There is no CGT at the time of the transfer, but the acquisition cost of the trust is reduced to £110,000.
   3. Adrian has no immediate CGT liability, but he would be liable to CGT on the trust’s periodic review.
   4. The gain is liable to CGT by the trust at acquisition and not on Adrian at disposal.

2. Bernadette gifted a portfolio of shares to her daughter which at the time was valued at £500,000 after exemptions. Bernadette died 3½ years later, at which time the portfolio was valued at £600,000. How much IHT is payable by Bernadette’s daughter in respect of the gift assuming Bernadette died in this tax year?
   1. £240,000
   2. £110,000
   3. £70,000
   4. £56,000

3. Miriam has worked in the same company for 15 years and has recently been asked by them to relocate to London to take up a new role. They have offered to reimburse relocation and removal expenses of £10,000. How will Miriam be taxed on this payment?
   1. £2,000 will be tax free and £8,000 will be taxable.
   2. £8,000 will be tax free and £2,000 will be taxable.
   3. £5,000 will be tax free and £5,000 will be taxable.
   4. The whole £10,000 will be tax free.

4. Ben has recently died having run his landscape gardening business as a sole trader for 15 years. He has left the business with a value of £500,000 to his son Charlie. Which of the following is true regarding the Inheritance Tax position of Ben’s business?
   1. Agricultural relief can be claimed at 50%.
   2. Business relief can be claimed at 50%.
   3. Agricultural relief can be claimed at 100%.
   4. Business relief can be claimed at 100%.

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 3
   Grab our taster mock exam paper for CII R03. Click here to download.

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

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

4. D – See R03 Study Text, Chp 4
   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.