Friday Five Focus on Taxation – 21 April – 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 2022/23, examinable by the CII until 31 August 2023. They do not relate to tax year 2023/24 which is only examinable by the CII from 1 September 2023.

1. Of the following individuals, who would be eligible to make a pension contribution that would receive full tax relief?
   1. Alex, a 78-year-old wishing to make a single gross contribution of £3,600.
   2. Leo, who earns £25,000 per annum and wishes to make a single gross contribution of £20,000.
   3. Steve, who has never previously contributed to a pension, wishes to make a single contribution of £40,000, his earnings last year were £52,000 but have fallen this year to £38,000.
   4. Alison, a full-time homemaker who wishes to make regular monthly gross contributions of £420.

2. Gail has set up a discretionary trust for her grandchildren for £400,000. Assuming she has a full nil rate band available and has NOT made any previous transfers, how much IHT will be payable assuming the trustees pay the tax?
   1. £30,000
   2. £15,000
   3. £14,400
   4. £13,800

3. Frankie is looking to mitigate her Inheritance Tax situation and has made a start by using her annual exemption for this tax year. She should be aware that: Tick all that apply.
   1. she can use her annual exemption from last tax year if she hasn’t done so already.
   2. any gift she makes now and, in the future, will qualify for taper relief.
   3. if she makes a gift, it will be effective for IHT even if she retains a benefit from it.
   4. a non-exempt gift into a discretionary trust will be a chargeable lifetime transfer (CLT).

4. Sally rents a room in her home for £140 per week. She is a basic-rate taxpayer and her expenses for renting the room are £800 per year. Which of the following would result in the least amount of Income Tax being paid on the rental income?
   1. Rent less expenses.
   2. Rent a room relief.
   3. Private residence relief.
   4. Business asset disposal relief.

5. What issues might an older client with potentially large capital gains within their investment portfolio face? Tick all that apply.
   1. Gifting assets could result in both Capital Gains Tax and Inheritance Tax.
   2. The option to defer the gain and reinvest in an Enterprise Investment Scheme is high risk and may not fit their risk profile.
   3. They would normally be charged at the 40% rate of Capital Gains Tax.
   4. Any decisions regarding disposals must normally involve the family which will delay any arrangement.

Answers

1. B – See R03 Study Text, Chp 1
   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. AD – 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 9
   Grab our taster mock exam paper for CII R03 Click here to download.

5. AB – See R03 Study Text, Chp 12
   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.