Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 21 Aug 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. Robert has total earnings of £10,000 and gross interest from his building society account of £4,000. What is his total Income Tax liability in this tax year?
   1. £0
   2. £86
   3. £186
   4. £286

2. Mark earns a basic salary of £50,000 and also receives self-employed profits of £20,000. In this tax year, what is Mark’s total liability to Income Tax?
   1. £7,486
   2. £11,486
   3. £15,432
   4. £20,460

3. Tom is a trustee of the Davies family Interest in Possession trust. What rate of Income Tax will he be liable for, as trustee, on savings income?
   1. 20%
   2. 37.5%
   3. 40%
   4. 45%

4. One of your clients has recently been asked to be a trustee on a discretionary trust which has the bulk of its investment in equities. The trust receives income of around £15,000 a year. He is concerned about the taxation of any dividends for the trust and the beneficiaries. You tell him that the trust is
   1. liable for 39.35% Income Tax after they have exceeded their standard rate band and the beneficiary is deemed to have received trust income not dividend income.
   2. not liable for any Income Tax and the beneficiary pays an extra 22.5% if they are a higher-rate taxpayer.
   3. liable for 8.75% Income Tax with the beneficiary paying an extra amount as determined by their own tax status.
   4. liable for 39.35% Income Tax and the beneficiary is deemed to have received trust income not dividend income.

5. Bernard made a £14,000 loss on a disposal in this tax year whereas his wife Betty made a substantial gain. In relation to the loss, Bernard is able to
   1. carry it forward to use in future years with an adjustment for inflation.
   2. carry it forward to use against future gains using only enough to reduce future gains to the annual exempt amount.
   3. offset it against the gain Betty has made in the same tax year.
   4. offset £3,000 against Betty’s gain and carry forward the surplus to use in future years.

Answers

1. A; See R03 Study Text, Chp 1; Rationale: Robert’s earnings fall fully within the personal allowance of £12,570 for the current tax year. His savings income falls partly within the remaining personal allowance (£12,570 – £10,000 = £2,570) meaning £2,570 are taxed at 0%, with the remaining £1,430 (i.e. £4,000 – £2,570) falling within the 0% starting rate band for savings income.
2. C; See R03 Study Text, Chp 1; Rationale: £50,000 + £20,000 = non-savings income of £70,000. £70,000 less personal allowance of £12,570 = taxable income of £57,430. £37,700 @ 20% = £7,540. £57,430 – £37,700 = £19,730 @ 40% = £7,892. Giving total tax due of £7,540 + £7,892 = £15,432.
3. A; See R03 Study Text, Chp 1; Rationale: Trustees of interest in possession trusts pay Income Tax at the basic rate. Savings income is therefore subject to tax at 20%.
4. D; See R03 Study Text, Chp 1; Rationale: Once their income exceeds £500, discretionary trusts are liable to Income Tax at the trustee rate. For dividend income, this is 39.35%. When a beneficiary receives income from a discretionary trust, they are deemed to have received ‘trust income’. The original source of the income becomes irrelevant.
5. B; See R03 Study Text, Chp 3; Rationale: Losses cannot be transferred between spouses. If a loss cannot be used in the tax year in which it occurs, it can be carried forward to use against gains in future tax years. When a loss from a previous tax year is brought forward, it only needs to be used to the extent that it brings the gain down to the annual exempt amount. Any excess can be carried forward again to a future tax year.

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