Friday Five Focus on Taxation – 19 August – 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 2021/22, examinable by the CII until 31 August 2022. They do not relate to tax year 2022/23 which is only examinable by the CII from 1 September 2022.

1. Liz has been off work sick for 6 months and is being paid through her employer’s income protection (IP) policy. Which of the following statements concerning the tax treatment of the IP is correct?
   1. Liz will receive a gross amount of IP benefit from her employer as sick pay.
   2. The premiums paid by the employer are not classed as an allowable expense.
   3. The benefit is paid directly to the employer and treated as a trading receipt.
   4. The premiums are treated as a benefit in kind for Liz.

2. Julie is considering diversifying her portfolio by investing in gilts. She has asked you to explain the income tax and capital gains tax (CGT) position to her. You tell her that:
   1. interest is paid net of 20% tax and losses for CGT are allowable.
   2. interest is usually paid gross but is taxable and any gains are CGT exempt.
   3. interest is paid gross but is taxable and only qualifying gilts are CGT free.
   4. interest is paid net of 20% tax and disposal of a gilt is a chargeable event.

3. Pippa died in the tax year 2002/2003 using 50% of the then Inheritance Tax nil-rate band of £250,000. If her husband David dies in this tax year his executors could apply for the standard nil rate band to be extended to:
   1. £650,000.
   2. £487,500.
   3. £450,000.
   4. £325,000.

4. Bernard made a £14,000 loss on a disposal in this tax year whereas his wife Betty made a substantial gain. Which of the following is he permitted to do?
   1. Carry the loss forward to use in future years with an adjustment for inflation
   2. Carry the loss forward to use against future gains using only enough to reduce future gains to the annual exempt amount
   3. Offset his loss against the gain Betty has made in the same tax year
   4. Offset the loss up to the annual exempt amount against Betty’s gain and carry forward the surplus to use in future years

5. What do promoters of tax avoidance schemes receive from HMRC in the event of their scheme being registered?
   1. A reference number
   2. A fixed penalty
   3. A 6-month timescale to wind up the scheme
   4. Sanctions to be used in all promotions

Answers

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

2. B – See R03 Study Text, Chp 9
   Grab our taster mock exam paper for CII R03. Click here to download.

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

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

5. A – See R03 Study Text, Chp 11
   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.