Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 17 Jul 2026

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. They do not relate to tax year 2026/27 which is only examinable by the CII from 1 September 2026.

1. Sharon has made gross pension contributions of £20,000 in this tax year. She has a share of partnership profits of £100,000 and paid interest of £60,000 on a loan taken out to finance the partnership. How much of the loan interest can be deducted for tax relief purposes?
   1. £20,000
   2. £30,000
   3. £50,000
   4. £60,000

2. Kim is an additional-rate taxpayer and has recently created a trust for her 10-year-old daughter Amelia. This produces £150 in gross interest. What is the Income Tax liability, if any?
   1. Nil
   2. £30.50
   3. £60.00
   4. £67.50

3. Which of the following individuals would be unable to claim a personal allowance against income taxable in the UK?
   1. John, a non-resident former teacher from the UK who, following a period of illness, has moved to Spain to recuperate and aid his recovery.
   2. Oliver who lives in the Isle of Man.
   3. Toby, who has annual overseas income of £6,000 and is using the Foreign Income and Gains (FIG) regime in the current tax year.
   4. Sophie, whose late husband worked at the Crown Prosecution Service and now lives in Germany.

4. Paul is a beneficiary under the family Interest in Possession trust. He has a personal income of £133,000 and has recently also received £2,000 income generated from the trust’s corporate bond holding. What is Paul’s Income Tax liability on this income?
   1. His liability is 40% of the gross income of £2,500.
   2. He has no liability as the trustees are responsible for any Income Tax.
   3. His liability is 45% of £2,500 less the 20% tax already deducted.
   4. He has no liability as 20% Income Tax has already been deducted.

5. Natalie is a company director and is paid a flat fee of £20,000. Her National Insurance contributions will be calculated by
   1. averaging her earnings over the last three years and applying the appropriate rates on a monthly basis.
   2. considering her total earnings from the start of the tax year and using the annual limits.
   3. applying the annual National Insurance limits to each fee she receives.
   4. deferring the National Insurance calculation until the end of the tax year.

Answers

1. C; See R03 Study Text, Chp 1; Rationale: Interest payments are an allowable deduction from adjusted total income if the loan is taken out for qualifying purposes. A loan to Sharon’s partnership is qualifying. Adjusted total income is total income plus charitable donations made via payroll minus any pension contributions. Sharon’s adjusted total income is therefore £100,000 – £20,000 = £80,000. The amount of interest that can be deducted is capped at the higher of £50,000 or 25% of adjusted total income. 25% of £80,000 = £20,000. Therefore, the amount of interest that can be deducted is £50,000.
2. D; See R03 Study Text, Chp 1; Rationale: Where a parent gifts money to a child, either directly or under trust, and that money produces an income in excess of £100, the income will be charged to tax at the parent’s rates. As Kim is an additional-rate taxpayer, the interest will be charged to tax at 45%. £150 @ 45% = £67.50.
3. C; See R03 Study Text, Chp 1; Rationale: Toby will have forfeited his entitlement to the personal allowance because he is using the FIG regime in the current tax year.
4. C; See R03 Study Text, Chp 1; Rationale: Paul’s income is in excess of £125,140, making him an additional-rate taxpayer. An interest in possession trust pays out income net of basic rate tax (20%). As an additional rate-taxpayer, Paul’s total liability is 45% of the gross income less the tax already deducted. The gross income is £2,000/0.8 = £2,500.
5. B; See R03 Study Text, Chp 2; Rationale: As a company director, Natalie has an annual earnings period. Each time she is paid, her total earnings from the start of the tax year must be taken into account when working out her NICs and annual limits will apply.

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