Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 19 Dec 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. James is not long-term resident in the UK, and his wife June is long-term resident in the UK. James is considering making an election to become long-term resident for Inheritance Tax purposes. This is most likely because he wants to
   1. be able to use the full spouse exemption.
   2. avoid Inheritance Tax on his worldwide property.
   3. backdate the use of the wedding exemption.
   4. ensure both can use their available nil rate bands.

2. 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

3. Madeline died on 12 December 2023 leaving her entire estate to her husband John. John died on 23 November 2025. Their children are acting as legal personal representatives, and they want to know how long they have to make a claim for the transfer of Madeline’s unused nil rate band. You tell them they have/had until
   1. 12 December 2025.
   2. 23 November 2026.
   3. 30 November 2027.
   4. 5 April 2027.

4. Charles, a higher-rate taxpayer, made a gross pension contribution of £35,000 in 2023/24 and £40,000 in 2024/25, (he didn’t make any contribution in 2022/23 as he was not a member of any pension scheme). What is the maximum annual allowance available to him in 2025/26?
   1. £85,000
   2. £105,000
   3. £125,000
   4. £135,000

5. 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.

Answers

1. A; See R03 Study Text, Chp 4; Rationale: Where a spouse is not long-term resident in the UK, their spousal exemption is limited to £325,000. If James were to make an election to become long-term resident in the UK, he would have an unlimited spousal exemption.
2. 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.
3. C; See R03 Study Text, Chp 4; Rationale: The claim should be made within two years of the end of the month in which the second death occurs, so that’s 30 November 2027.
4. B; See R03 Study Text, Chp 1; Rationale: The annual allowance is £60,000. Unused allowance can be carried forward for up to three tax years. Charles cannot carry forward from 2022/23 as he was not a member of any pension scheme. He has £60,000 – £35,000 = £25,000 unused allowance that he can carry forward from 2023/24. He has £60,000 – £40,000 = £20,000 that he can carry forward from 2024/25. This gives him a total of £25,000 + £20,000 + £60,000 (his allowance for 2025/26) = £105,000 as the maximum annual allowance available to him in 2025/26.
5. B; See R03 Study Text, Chp 9; Rationale: Neither private residence relief nor business asset disposal relief is relevant to Income Tax. Under the rent less expenses method, Sally would be liable to tax on £140 × 52 = £7,280 less £800 expenses = £6,480. Tax would be charged at 20% giving a tax bill of £1,296. Under rent a room relief, Sally can receive rental income of up to £7,500 tax-free. Rent a room relief therefore results in the least amount of Income Tax for Sally.

Grab the resources you need!

If you’re working through R03, our E-Mock Exams give you realistic, exam-style practice so you can check your understanding and strengthen the areas that still feel uncertain. They’re a solid way to build confidence before you sit the real thing.

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