Friday Five Focus on Taxation – 6 May – 5 Questions in 5 Minutes

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 2021/22, examinable by the CII until 31 August 2022. They do not relate to tax year 2022/23 which is only examinable by the CII from 1 September 2022.

1. 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

2. Tom is considering investing in an onshore single premium life assurance bond. He should be aware that: Tick all that apply.
   1. the fund suffers tax on income and capital gains at a rate of 10%.
   2. maturity of the bond will be treated as a chargeable event.
   3. surrender of the bond may give rise to a 25% Income Tax liability.
   4. if he later assigns the policy to his wife this will be a chargeable event.

3. Florence has recently become self-employed. She is aware that she will have to pay National Insurance contributions but wants to know how. You tell her that:
   1. Class 2 and class 4 are normally paid by monthly direct debit.
   2. Class 2 is included with the income tax self-assessment and class 4 is normally paid by monthly direct debit.
   3. Class 2 and class 4 are both accounted for under self-assessment.
   4. Class 2 is normally paid by monthly direct debit and class 4 is included with the income tax self-assessment.

4. 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

5. What issues might an older client with potentially large capital gains within their investment portfolio face? Tick all that apply
   1. Gifting assets could result in both Capital Gains Tax and Inheritance Tax
   2. The option to defer the gain and reinvest in an Enterprise Investment Scheme is high risk and may not fit their risk profile
   3. They would normally be charged at the 40% rate of Capital Gains Tax
   4. Any decisions regarding disposals must normally involve the family which will delay any arrangement

Answers

1. B – See R03 Study Text, Chp 4
   Grab our taster mock exam paper for CII R03. Click here to download.

2. BC – See R03 Study Text, Chp 10
   Grab our taster mock exam paper for CII R03. Click here to download.

3. C – See R03 Study Text, Chp 2
   Grab our taster mock exam paper for CII R03. Click here to download.

4. B – See R03 Study Text, Chp 9
   Grab our taster mock exam paper for CII R03 Click here to download.

5. AB – See R03 Study Text, Chp 12
   Grab our taster mock exam paper for CII R03. Click here to download.

How did you find this week’s questions? Did you complete them in 5 minutes? Did you get them all correct? Do you disagree with any?

If you found this quiz useful for your CII exam revision, please do share it with your colleagues.