Friday Five Focus on Taxation – 5 Questions in 5 Minutes – 8 May 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. With regard to taxation, trustees of an interest in possession trust where the asset is a rental property should be aware that
   1. they will only ever be charged to basic rate tax on the rental income.
   2. a higher-rate taxpaying beneficiary will not owe any extra tax on rental income.
   3. they are entitled to tax relief for the expenses they incur in managing the trust.
   4. they will be entitled to a personal allowance in each tax year.

2. Amanda is selling her flat and buying a larger residential property in Manchester for £380,000. She has agreed with the vendor that this includes £5,500 for all of the white goods, carpets, and curtains. How much Stamp Duty Land Tax is payable?
   1. £6,225
   2. £8,725
   3. £9,345
   4. £10,500

3. How often do registered Value Added Tax (VAT) traders normally have to pay any VAT due to HM Revenue & Customs?
   1. At the date they supply taxable goods.
   2. Monthly.
   3. Quarterly.
   4. Annually.

4. Rupa owns a furnished buy-to-let flat. In the 2025/26 tax year, she receives rental income of £10,000. She incurs allowable expenses of £13,000, including general maintenance, letting agent fees, and insurance. No capital allowances or balancing charges apply. Rupa also earns £45,000 from her employment. How will this £3,000 rental loss be treated for tax purposes?
   1. It can be set against her employment income in 2025/26.
   2. It must be carried back and set against previous rental profits.
   3. It must be carried forward and set only against future property-letting profits.
   4. It can be set against any of her income in 2025/26, but only with a formal claim.

5. Simon is a higher-rate taxpayer. Four years ago, he invested in an Enterprise Investment Scheme (EIS) and received Income Tax relief on his investment at that time. In January 2026, he wishes to sell the EIS shares. Which of the following is correct regarding his most likely Capital Gains Tax (CGT) position?
   1. If the Income Tax relief was not withdrawn, he will pay CGT at 18%.
   2. He received Income Tax relief so will pay CGT at 24%.
   3. He has held the shares for over three years so will not pay CGT.
   4. He will be exempt from CGT on 50% of gains and will pay 24% on the balance.

Answers

1. A; See R03 Study Text, Chp 1; Rationale: Trustees of an interest in possession trust only ever pay tax at the basic rate on income, including rental income. A higher-rate taxpaying beneficiary will owe an additional 20% of the gross rental income. Trustees of an interest in possession trust are not entitled to tax relief for the expenses they incur in managing the trust, although trust expenses are deducted before paying out the beneficiary’s income. Trustees are not entitled to a personal allowance.
2. B; See R03 Study Text, Chp 7; Rationale: A reasonable amount for fixtures and fittings can be deducted from the buying price. £380,000 – £5,500 = £374,500. First £125,000 charged at 0% = £0. Next £125,000 charged at 2% = £2,500. £374,500- £250,000 = £130,000 at 5% on excess over £250,000 = £6,225. Total = £8,725.
3. C; See R03 Study Text, Chp 8; Rationale: VAT traders normally pay VAT quarterly.
4. C; See R03 Study Text, Chp 9; Rationale: Because there are no capital allowances or balancing charges, the full £3,000 loss must be automatically carried forward and used against future property income. No claim is required.
5. C; See R03 Study Text, Chp 12; Rationale: Once shares in an EIS have been held for three years, there will not usually be a liability to CGT on their disposal.

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