Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 10 Oct 2025

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 2025/26, examinable by the CII until 31 August 2026.

1. The James Family Discretionary trust accumulates income and has no expenses. The trust‘s only income is gross interest of £2,000. How is the trustees’ total tax liability calculated, assuming this is the only trust created by the settlor?
   1. £2,000 taxed at 20%.
   2. £1,000 taxed at 20% and £1,000 taxed at 45%.
   3. £2,000 taxed at 45%.
   4. £1,000 taxed at 8.75% and £1,000 taxed at 39.35%.

2. With regard to taxation, trustees of an interest in possession trust where the asset is a rental property should be aware that
   1. they will only ever be charged to basic rate tax on the rental income.
   2. a higher-rate taxpaying beneficiary will not owe any extra tax on rental income.
   3. they are entitled to tax relief for the expenses they incur in managing the trust.
   4. they will be entitled to a personal allowance in each tax year.

3. Phil doesn’t receive a tax return but made a significant gain when he sold his portfolio of shares on 7 April 2025. By what date must he tell HM Revenue & Customs and when must he pay any Capital Gains Tax?
   1. By 5 April 2026 and paid within 6 months of the gain being made.
   2. Within 6 months of the gain being made and paid by 5 April 2026.
   3. Within 28 days of the gain being made and paid by 5 April 2026.
   4. Within 6 months of the end of tax year 2025/26 and paid by 31 January 2027.

4. Which of the following benefits is either wholly or largely exempt from Income Tax for an employee?
   1. Accommodation where the employee pays a low rent.
   2. A company car that runs on diesel.
   3. Premiums paid for Private Medical Insurance.
   4. An award of £1,000 for 25 years’ service.

5. Cleo, a first-time buyer, buys a flat in England for £252,950. How much Stamp Duty Land Tax (SDLT) will be payable on this purchase?
   1. Nil
   2. £59.00
   3. £147.50
   4. £2,559.00

Answers

1. C; See R03 Study Text, Chp 1; Rationale: Where income received in a discretionary trust exceeds £500, the full amount is charged at the trustee rates: 39.35% for dividend income and 45% for savings income. The full £2,000 is therefore charged to tax at 45%.
2. A; See R03 Study Text, Chp 1; Rationale: Trustees of an interest in possession trust only ever pay tax at the basic rate on income, including rental income. A higher-rate taxpaying beneficiary will owe an additional 20% of the gross rental income. Trustees of an interest in possession trust are not entitled to tax relief for the expenses they incur in managing the trust, although trust expenses are deducted before paying out the beneficiary’s income. Trustees are not entitled to a personal allowance.
3. D; See R03 Study Text, Chp 3; Rationale: Phil must advise HMRC of the gain within 6 months of the end of the 2025/26 tax year (the year in which the gain arose) and pay any CGT by 31 January 2027 (the January following the end of the tax year in which the gain was made).
4. D; See R03 Study Text, Chp 1; Rationale: An award of £50 for every year’s service can be made tax-free under a long service award (20 years or more). 25 x £50 = £1,250 so the £1,000 award is wholly exempt from Income Tax. The other benefits listed are all taxable.
5. A; See R03 Study Text, Chp 7; Rationale: As a first-time buyer, Cleo benefits from SDLT relief where no SDLT is paid on purchases of residential property costing £300,000 or less. The amount due is therefore £0.

Grab the resources you need!

If you’re preparing for the CII R03 exam, our R03 E-Mocks offer full exam-standard practice to help you test your understanding under timed conditions. You can access them online and even try a free taster first to see how they can support your revision.

If this quiz helped with your CII exam revision, why not share it with colleagues who are studying too?