Friday Five Focus on Taxation – 5 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 2023/24, examinable by the CII until 31 August 2024. They do not relate to tax year 2024/25 which is only examinable by the CII from 1 September 2024.

1. Liz has been off work sick for six 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 taxable benefit in kind for Liz.

2. When would a Capital Gains Tax chargeable disposal be deemed to have taken place in the following scenarios?
   1. Sian, a beneficiary under a trust, becomes absolutely entitled to the trust assets.
   2. James makes a gain of £120,000 on selling his main residence.
   3. A married couple changes ownership of their investment bond when one becomes a basic-rate taxpayer.
   4. Peter dies and his antique car is passed to his son in accordance with his wishes.

3. In which of the following scenarios would a child’s income be treated as if it belonged to their parent or grandparent for Income Tax purposes?
   1. Steven opens a bank account in his son’s name which earns £80 interest per annum.
   2. Stefan, aged 12, earns £30 per week delivering newspapers.
   3. Simon opens a building society account for his grandson which earns £110 interest per annum.
   4. Sarah, aged 16, receives money from her parents and invests it in a cash ISA where it earns £115 interest per annum.

4. Jake is considering gifting £600,000 for the benefit of his son. He should be aware that to do this without incurring an Inheritance Tax liability at the time he could transfer:
   1. £600,000 to a bare trust with his son as beneficiary.
   2. £325,000 to a discretionary trust and £275,000 to an interest in possession trust.
   3. £600,000 to an interest in possession trust.
   4. £400,000 to a discretionary trust and £200,000 to a bare trust.

5. 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%.

Answers

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

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

5. D – 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.