Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 27 Feb 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. Which of the following can be an effective strategy for reducing a company director’s liability to National Insurance contributions?
   1. Sacrificing salary to increase the amount the company pays to company pension schemes.
   2. Giving up their company car.
   3. Arranging for their salary to be paid in ad-hoc lump sums rather than on a monthly or weekly basis.
   4. Increasing their contributions into a personal pension.

2. Charlie sets up a discretionary trust in this tax year for his grandchildren for £425,000. He has already used his annual exemptions. How much Inheritance Tax (IHT) will be payable assuming Charlie pays it when he sets up the trust?
   1. £40,000
   2. £25,000
   3. £20,000
   4. £10,000

3. Andrew is a self-employed plumber and for the first time is going to complete his tax return online. He wants to know when the deadline is for submitting this to HM Revenue & Customs for the 2025/26 tax year. You tell him that the filing date is the
   1. 31 October 2026.
   2. 30 December 2026.
   3. 31 January 2027.
   4. 31 January 2028.

4. Which of these statements regarding local authority and corporate bonds is true?
   1. Corporate bonds pay interest net of 20% tax.
   2. Only interest received from a local authority bond is fully taxable as savings income.
   3. If a local authority bond is bought at issue and held to maturity, the capital should be repaid.
   4. A corporate bond pays interest for an open-ended period.

5. Paul and Sarah, both age 38, are married with two children aged 15 and 17. What is the total amount they can pay into ISAs in the current tax year?
   1. £40,000
   2. £60,000
   3. £58,000
   4. £80,000

Answers

1. A; See R03 Study Text, Chp 11; Rationale: Sacrificing salary to increase the amount the company pays to a company pension scheme is an effective NIC planning strategy as it reduces the amount of income the director receives and ultimately pays NICs on. Giving up their company car will not be effective as employees do not pay NICs on taxable employee benefits. Directors are assessed for NIC purposes on an annual basis, so being paid in ad-hoc lump sums makes no difference to the amount of NICs they pay. Finally, personal pension contributions are paid from net income (i.e. after Income Tax and NICs have been paid) and therefore do not reduce NICs.
2. B; See R03 Study Text, Chp 4; Rationale: Where the settlor pays the immediate charge to IHT, the CLT has to be grossed up. For a net gift of £425,000 the tax is calculated as ¼ of the excess over the nil rate band. £425,000 – £325,000 = £100,000. £100,000 x ¼ = £25,000. An alternative way of looking at this is to charge the excess at 25% rather than the 20% that would apply if the trustees paid the bill.
3. C; See R03 Study Text, Chp 6; Rationale: For the 2025/26 tax year, the final filing date for submitting a tax return online is 31 January following the end of the tax year, i.e., 31 January 2027.
4. C; See R03 Study Text, Chp 9; Rationale: If a local authority bond is bought at issue and held to maturity, the capital should be repaid. The other statements are false. Both pay interest gross, both are fully taxable as savings income and a corporate bond, like a local authority bond, pays interest for a fixed period.
5. C; See R03 Study Text, Chp 10; Rationale: Paul and Sarah can invest £20,000 each for themselves into ISAs. They can also place £9,000 into a Junior ISA for each of their children. The total amount is therefore £20,000 + £20,000 + £9,000 + £9,000 = £58,000.

Grab the resources you need!

If you’re preparing for R03, it’s useful to practise applying the rules in exam-style questions rather than relying on recall alone. Our CII R03 E-Mocks mirror the structure and approach of the real assessment, helping you identify the areas that still need attention. You can get access to the free R03 E-Mocks taster to see how the format supports focused revision.

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