Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 23 Jan 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.

1. Julian has an estate valued at £3,000,000. He regularly uses his annual exemption for Inheritance Tax (IHT) and is now considering making an outright gift to his son of £500,000. Julian should be aware that:
   1. the transfer will be immediately charged to IHT at 20% over the nil rate band.
   2. if he survives making the gift by at least three years there will be a reduction in any IHT payable.
   3. if the gift to his son becomes chargeable, his legal personal representatives will be liable for any IHT due.
   4. he must report the amount of the gift to HM Revenue & Customs within six months of making it.

2. 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

3. Donna has made a Potentially Exempt Transfer of £350,000 to her nephew. Regarding the reporting of the gift to HM Revenue & Customs, it is correct to say that
   1. she must inform them within 28 days of the gift being made.
   2. she must inform them within 90 days of the gift being made.
   3. her nephew must report it them within six months of receiving the gift.
   4. the gift does not have to be reported to them.

4. Gemma is a higher-rate taxpayer. She invested £100,000 into an onshore investment bond just over eight years ago, which was segmented into 100 identical policies. The bond is now valued at £140,000. She would like to know how much she can withdraw from the bond with the minimum amount of tax liability. You tell her that she can
   1. withdraw £500 from each policy without any immediate tax liability.
   2. withdraw £500 from each policy with a 20% tax liability on £50,000.
   3. surrender 50 policies with a 20% tax liability on £10,000.
   4. withdraw £450 from each policy without any immediate tax liability.

5. Harry enters into a lease agreement for a commercial unit and receives a reverse premium from the landlord. How will this reverse premium typically be treated for tax purposes?
   1. Fully exempt from tax as it is an incentive.
   2. Taxable on receipt as a capital gain.
   3. Taxable as income, usually spread over the lease term.
   4. Deductible from Harry’s rental income if sub-letting the unit.

Answers

1. B; See R03 Study Text, Chp 4; Rationale: If Julian survives at least three years after making the gift, taper relief will mean a reduced percentage of the full death rate is used. There will be no immediate charge to tax as the gift will be classed as a potentially exempt transfer (PET). Julian’s son will be liable, in the first instance, for any IHT due. There is no need to report a PET to HMRC, although it is a good idea to keep a personal record.
2. 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.
3. D; See R03 Study Text, Chp 4; Rationale: There is no need to report a PET to HMRC, although Donna or her nephew might want to make a note of the gift for their own records.
4. D; See R03 Study Text, Chp 10; Rationale: If £100,000 is invested in an onshore investment bond segmented into 100 identical policies, then each policy segment is worth £1,000 at outset. Under the 5% withdrawal facility, 5% of each segment can be withdrawn each policy year with no immediate liability to tax. As the bond is just over eight years old, we are now in the ninth policy year. Therefore £1,000 @ 5% x 9 can be taken from each policy without a tax liability at the time – which is £450.
5. C; See R03 Study Text, Chp 9; Rationale: For the tenant, the reverse premium is taxed in line with accountancy principles – usually as income spread across the lease period.

Grab the resources you need!

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