Friday Five Focus on Taxation – 25 June – 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. They do not relate to tax year 2021/22 which is only examinable by the CII from 1 September 2021

1. Sam is self-employed and in his VAT return has reported output VAT of £10,000 and input VAT of £6,000. How much VAT will Sam either owe HMRC or be able to reclaim?
   1. He will owe £1,000.
   2. He will owe £800.
   3. He can reclaim £1,000.
   4. He can reclaim £800.

2. Lisa has recently made a £100,000 gain on selling her buy to let home. She is now considering whether to reinvest this in an Enterprise Investment Scheme (EIS). Which of the following would be a benefit to Lisa of doing this?
   1. She can defer the original gain until she disposes of the EIS shares.
   2. 50% of the original gain will be exempt from tax.
   3. Any subsequent gain would be taxed at a lower rate on disposal.
   4. This will reduce the base cost of the EIS shares by the original gain.

3. Maggie and John Brown are reviewing their wills and contemplating including a trust for ‘bereaved minors’ as they have 12-month-old twin daughters. Which of the following should they be made aware of regarding this type of trust?
   1. They are subject to an exit charge at age 18.
   2. They are subject to a 10-yearly periodic charge.
   3. They must give an absolute interest at age 18.
   4. They must give an interest in possession at age 18.

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. Paul has recently taken out an investment bond and wants to know if he will be subject to income tax on any gain that is made. Which of the following do you need to explain to him is a chargeable event under a non-qualifying life policy? Tick all that apply.
   1. Surrender
   2. Assignment for money’s worth
   3. Assignment between spouses
   4. Payment of a critical illness benefit

Answers

1. B – See R03 Study Text, Chp 8
   Grab our taster mock exam paper for CII R03. Click here to download.

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

3. C – 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 10
   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.