The CII R03 Exam is a tricky one

Over the past few years, the pass rates show that the CII Diploma R03 Personal Taxation exam has had the lowest pass rate out of all the R0 exams.  What’s more, the most recent results from 2017 show a further dip. Here we take a look at why this exam is so tricky to pass.

THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2017/18.

Take a look at the R03 pass rates for the last five years:

Here at Brand Financial Training, we like to look at trends, so we’ve spent some time looking at why R03 is so tricky to pass.

Time Pressure is enormous

We often hear from exam candidates who have sat R03, and one criticism we have heard is that 60 minutes is not long enough to answer 50 questions, particularly when 15 are multiple-response.  The time pressure is enormous and should not be under-estimated.

Practise using mock exam papers

One way to speed up is to attempt mock exams in that crucial 60-minute time frame.

Look at the types of questions

Another area to look at is the type of questions being asked.  You can be pretty sure that there will always be calculations on:

• investment bond taxation (offshore and onshore);
• income tax, which might include tapering the personal allowance;
• the use of the Dividend Allowance and Personal Savings Allowance;
• inheritance tax, including the 36% rate; and also
• Capital Gains Tax.

The exam is also made up of theory questions, and you are likely to see a question on VCTs and/or EISs, and often there is a question how much a family can invest into ISAs.  You will be given the ages of the children so watch out for the 16-year-old who can have both a cash ISA AND a Junior ISA.

Watch out for the WAY a question is asked

Although we can be pretty sure that these questions will be asked, it’s the way they are asked that can often trip candidates up. Sometimes the wording can seem complicated and one skill needed is to be able to pick through the information to get to what is actually being tested.

An Example Based on the Exam Guide

For example, a question based on the exam guide is:

Stanley, a higher rate taxpayer, receives £10,000 annually in dividends from an inherited investment portfolio.  He also owns 500 shares in a PLC.  If this company declares a dividend of £1.80 per share, what amount will Stanley receive in his bank account?

There are couple of points to make here – firstly the fact he is a higher rate taxpayer is irrelevant for this question. The fact he has £10,000 dividend income is also irrelevant information to answer the question (we assume it’s there to indicate that they exceed the dividend allowance).  All we need to do to answer the question is multiply 500 x £1.80 to know that £900 is paid into his bank account.  It seems too simple but that really is the answer!  Don’t forget that the 10% tax credit does not apply anymore to dividends; one of the answers in the 4 options is £810, which is there to trip up those delegates who might have temporarily forgotten!

Looking at an Investment Bond Question

Investment bond questions are also regular features, so let’s look at one of these:

Rob, when aged 60, invested £20,000 in an onshore bond (he hasn’t made any withdrawals).  It was surrendered in full just over 5 years later in 2017/18 for £27,500.  His other income for the year, after allowances and deductions, is £33,500 which includes £1,000 of interest.   The question is: what amount of income tax will Rob have to pay on surrender?

Notice that Rob’s salary is the same as the basic rate income tax band (his age is irrelevant).  We are told he has interest of £1,000 and this is to demonstrate that the PSA is utilised.  Back to the question: the gain is £7,500.  Delegates will then start thinking about top slicing and whether it’s 5 or 6 years (as it’s a full surrender, it will be 5).  However, we don’t need to top slice; the basic rate band has been used, so the whole gain is taxed at 20% (answer = £1,500).  If a delegate had top sliced by 5 years and multiplied by 20% (and forgotten to multiply this by the numbers of years) the answer is £300 (answer C);  if they had top sliced by 6 the answer is £250 (answer B).  It would have been easy to get this question wrong under exam conditions, so as you can see, practising these types of question is crucial.

Maximise your chances of passing R03

To pass R03, study the CII exam guide, practise for the exam with mock papers, work out what’s being asked and practise standard calculations – then you should be able to weed out superfluous information and just answer the question!

Grab the resources you need!

If you’re studying for your CII R03 exam, and you don’t want to waste precious time figuring out the calculations, you’ll need to be well prepared. Grab our free taster to try out one of Brand Financial Training’s calculation workbooks for yourself.  Click the link to download the R03 calculation workbook taster now!