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Question 1 of 9
1. Question
Sandra is a freelance graphic designer and recently sold her high-end computer in the 2024/25 tax year, which she initially bought for her business in the same tax year, at a profit. She bought the computer for £1,500 and sold it for £3,500. Sandra incurred £50 in advertising fees to sell the computer and had previously upgraded the computer’s hardware, spending an additional £200. Sandra has not made any losses in the 2024/25 tax year and has no other disposals. Assuming the annual exemption for Capital Gains Tax is £3,000, calculate Sandra’s Capital Gains Tax liability in 2024/25 for this disposal.
Correct
Sandra's total gain from the disposal of her computer is calculated as follows: Sale proceeds (£3,500) minus allowable expenditure (initial purchase price of £1,500 + advertising fees of £50 + hardware upgrade of £200), which equals £1,750. This amount is below the annual exemption threshold for Capital Gains Tax, which is £3,000. Therefore, Sandra does not have any Capital Gains Tax liability for this disposal.
Proceeds 3,500.00 Less: Cost – 1,500.00 Advertising fees – 50.00 Upgrade expenditure – 200.00 1,750.00 Less: AEA -3000 No CGT liability Incorrect
Sandra's total gain from the disposal of her computer is calculated as follows: Sale proceeds (£3,500) minus allowable expenditure (initial purchase price of £1,500 + advertising fees of £50 + hardware upgrade of £200), which equals £1,750. This amount is below the annual exemption threshold for Capital Gains Tax, which is £3,000. Therefore, Sandra does not have any Capital Gains Tax liability for this disposal.
Proceeds 3,500.00 Less: Cost – 1,500.00 Advertising fees – 50.00 Upgrade expenditure – 200.00 1,750.00 Less: AEA -3000 No CGT liability Unattempted
Sandra's total gain from the disposal of her computer is calculated as follows: Sale proceeds (£3,500) minus allowable expenditure (initial purchase price of £1,500 + advertising fees of £50 + hardware upgrade of £200), which equals £1,750. This amount is below the annual exemption threshold for Capital Gains Tax, which is £3,000. Therefore, Sandra does not have any Capital Gains Tax liability for this disposal.
Proceeds 3,500.00 Less: Cost – 1,500.00 Advertising fees – 50.00 Upgrade expenditure – 200.00 1,750.00 Less: AEA -3000 No CGT liability -
Question 2 of 9
2. Question
ABC Ltd. has declared a dividend of £10,000 to its shareholder, John, who is a higher rate taxpayer. How will this dividend be treated for tax purposes for John in the 2024/25 tax year? In 2024/25 the dividend allowance is £500.
Correct
Option C is correct. For tax purposes, dividends received by shareholders are first subject to the annual dividend allowance, which is £500 for the 2024/25 tax year. This portion of the dividend is tax-free. Any dividend income received above this allowance is taxed at the respective dividend tax rate depending on the taxpayer's income tax band. Therefore, the first £500 of John's dividend is tax-free, and the remaining £9,500 will be taxed at the higher dividend tax rate. For completeness, for a higher rate taxpayer, the dividend tax rate for 2024/25 was 33.75% for the amount exceeding the allowance.
Dividend 10,000.00 Dividend allowance 500.00 Taxable at higher rate 9,500.00 Incorrect
Option C is correct. For tax purposes, dividends received by shareholders are first subject to the annual dividend allowance, which is £500 for the 2024/25 tax year. This portion of the dividend is tax-free. Any dividend income received above this allowance is taxed at the respective dividend tax rate depending on the taxpayer's income tax band. Therefore, the first £500 of John's dividend is tax-free, and the remaining £9,500 will be taxed at the higher dividend tax rate. For completeness, for a higher rate taxpayer, the dividend tax rate for 2024/25 was 33.75% for the amount exceeding the allowance.
Dividend 10,000.00 Dividend allowance 500.00 Taxable at higher rate 9,500.00 Unattempted
Option C is correct. For tax purposes, dividends received by shareholders are first subject to the annual dividend allowance, which is £500 for the 2024/25 tax year. This portion of the dividend is tax-free. Any dividend income received above this allowance is taxed at the respective dividend tax rate depending on the taxpayer's income tax band. Therefore, the first £500 of John's dividend is tax-free, and the remaining £9,500 will be taxed at the higher dividend tax rate. For completeness, for a higher rate taxpayer, the dividend tax rate for 2024/25 was 33.75% for the amount exceeding the allowance.
Dividend 10,000.00 Dividend allowance 500.00 Taxable at higher rate 9,500.00 -
Question 3 of 9
3. Question
Helen, acting as the sole executor for her Aunt June's estate, needs to complete the inheritance tax assessment in the 2024/25 tax year. Aunt June's assets include an apartment valued at £250,000, investments totaling £100,000, and a life insurance payout of £50,000 that goes directly to Helen as a named beneficiary. Aunt June had a remaining mortgage of £150,000, unpaid medical bills of £20,000, and funeral costs are estimated at £10,000. Helen is preparing to submit the appropriate inheritance tax form and must first calculate the net value of June's estate. What is the correct net value of the estate for inheritance tax purposes?
Correct
To determine the net value of Aunt June's estate, begin by totaling her assets: £250,000 (apartment) + £100,000 (investments) = £350,000. The life insurance payout of £50,000 is not included in the estate valuation for inheritance tax purposes since it goes directly to a named beneficiary. Next, subtract the liabilities: £350,000 – £150,000 (remaining mortgage) – £20,000 (unpaid medical bills) – £10,000 (funeral costs) = £170,000. Therefore, the correct net value of June's estate for inheritance tax purposes is £170,000.
£ Apartment 250,000.00 Investments 100,000.00 Life insurance payout – Not subject to inheritance tax Mortgage liability – 150,000.00 Unpaid medical bills – 20,000.00 Funeral costs – 10,000.00 Estate value 170,000.00 Incorrect
To determine the net value of Aunt June's estate, begin by totaling her assets: £250,000 (apartment) + £100,000 (investments) = £350,000. The life insurance payout of £50,000 is not included in the estate valuation for inheritance tax purposes since it goes directly to a named beneficiary. Next, subtract the liabilities: £350,000 – £150,000 (remaining mortgage) – £20,000 (unpaid medical bills) – £10,000 (funeral costs) = £170,000. Therefore, the correct net value of June's estate for inheritance tax purposes is £170,000.
£ Apartment 250,000.00 Investments 100,000.00 Life insurance payout – Not subject to inheritance tax Mortgage liability – 150,000.00 Unpaid medical bills – 20,000.00 Funeral costs – 10,000.00 Estate value 170,000.00 Unattempted
To determine the net value of Aunt June's estate, begin by totaling her assets: £250,000 (apartment) + £100,000 (investments) = £350,000. The life insurance payout of £50,000 is not included in the estate valuation for inheritance tax purposes since it goes directly to a named beneficiary. Next, subtract the liabilities: £350,000 – £150,000 (remaining mortgage) – £20,000 (unpaid medical bills) – £10,000 (funeral costs) = £170,000. Therefore, the correct net value of June's estate for inheritance tax purposes is £170,000.
£ Apartment 250,000.00 Investments 100,000.00 Life insurance payout – Not subject to inheritance tax Mortgage liability – 150,000.00 Unpaid medical bills – 20,000.00 Funeral costs – 10,000.00 Estate value 170,000.00 -
Question 4 of 9
4. Question
Brian passed away in May 2023, leaving behind an estate that includes a small cottage valued at £200,000, savings amounting to £50,000, and personal belongings worth £5,000. Brian had made a gift of £15,000 to his nephew in February 2022. His solicitor is preparing the application for a grant of probate in the 2024/25 tax year and needs to decide which inheritance tax form to submit to the Probate Registry. Assuming the nil rate band for the tax year 2024/25 is £325,000 and the total sum of specified transfers made in the seven years before death must not exceed £150,000 to qualify as a ‘specified transfer', which form should the solicitor choose to submit as part of the application for a grant of probate?
Correct
Brian’s estate qualifies as a ‘small’ excepted estate because the total value of his estate (£255,000) plus the specified transfer made within seven years before his death (£15,000) totals £270,000. This sum is well below the nil rate band for the year of death 2023/24, which was £325,000. Therefore, no inheritance tax is payable, and the solicitor should submit Form IHT205 as part of the application for a grant of probate. This form is used for estates that are ‘excepted’ from inheritance tax, indicating that the estate’s total value does not require the payment of inheritance tax.
Cottage 200,000.00 Savings 50,000.00 Personal belongings 5,000.00 Gift 15,000.00 270,000.00 Nil rate band 325,000.00 Liability 0% Incorrect
Brian’s estate qualifies as a ‘small’ excepted estate because the total value of his estate (£255,000) plus the specified transfer made within seven years before his death (£15,000) totals £270,000. This sum is well below the nil rate band for the year of death 2023/24, which was £325,000. Therefore, no inheritance tax is payable, and the solicitor should submit Form IHT205 as part of the application for a grant of probate. This form is used for estates that are ‘excepted’ from inheritance tax, indicating that the estate’s total value does not require the payment of inheritance tax.
Cottage 200,000.00 Savings 50,000.00 Personal belongings 5,000.00 Gift 15,000.00 270,000.00 Nil rate band 325,000.00 Liability 0% Unattempted
Brian’s estate qualifies as a ‘small’ excepted estate because the total value of his estate (£255,000) plus the specified transfer made within seven years before his death (£15,000) totals £270,000. This sum is well below the nil rate band for the year of death 2023/24, which was £325,000. Therefore, no inheritance tax is payable, and the solicitor should submit Form IHT205 as part of the application for a grant of probate. This form is used for estates that are ‘excepted’ from inheritance tax, indicating that the estate’s total value does not require the payment of inheritance tax.
Cottage 200,000.00 Savings 50,000.00 Personal belongings 5,000.00 Gift 15,000.00 270,000.00 Nil rate band 325,000.00 Liability 0% -
Question 5 of 9
5. Question
Simon has a freelance income as a university lecturer of £60,000 for the 2024/25 tax year. He also has rental income from a property amounting to £8,000 and has made £3,000 from selling shares. Simon has made pension contributions of £5,000. Assuming his personal allowance is £12,570, how is his income tax charge calculated for the 2024/25 tax year?
Correct
Simon’s total income is £71,000, comprising £60,000 from freelance income, £8,000 from rental income, and £3,000 from selling shares. His pension contributions of £5,000 are subtracted from his total income, leaving £66,000. Then, his personal allowance of £12,570 is deducted, resulting in a taxable income of £53,430. However, the £3,000 from selling shares would typically be considered under Capital Gains Tax, not income tax. Therefore, for income tax purposes, his charge is calculated on £50,430 (£60,000 freelance income + £8,000 rental income – £5,000 pension contributions – £12,570 personal allowance).
Incorrect
Simon’s total income is £71,000, comprising £60,000 from freelance income, £8,000 from rental income, and £3,000 from selling shares. His pension contributions of £5,000 are subtracted from his total income, leaving £66,000. Then, his personal allowance of £12,570 is deducted, resulting in a taxable income of £53,430. However, the £3,000 from selling shares would typically be considered under Capital Gains Tax, not income tax. Therefore, for income tax purposes, his charge is calculated on £50,430 (£60,000 freelance income + £8,000 rental income – £5,000 pension contributions – £12,570 personal allowance).
Unattempted
Simon’s total income is £71,000, comprising £60,000 from freelance income, £8,000 from rental income, and £3,000 from selling shares. His pension contributions of £5,000 are subtracted from his total income, leaving £66,000. Then, his personal allowance of £12,570 is deducted, resulting in a taxable income of £53,430. However, the £3,000 from selling shares would typically be considered under Capital Gains Tax, not income tax. Therefore, for income tax purposes, his charge is calculated on £50,430 (£60,000 freelance income + £8,000 rental income – £5,000 pension contributions – £12,570 personal allowance).
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Question 6 of 9
6. Question
A personal representative, Alex, is managing the estate of Jamie, who passed away during the 2024/25 tax year. Jamie's estate includes a rental property that generated rental income of £12,000 during the six-month administration period. The estate also received dividends of £5,000 from shares in various companies. Alex seeks advice on the income tax obligations for the estate. Given the information, which of the following best describes the income tax payable by the estate on its generated income? The applicable income tax rate in 2024/25 for non-savings income was 20%, and 8.75% for dividend income.
Correct
The personal representatives must pay income tax on any income generated by the estate during the administration period. Rental income is taxed at 20%, resulting in £2,400 (£12,000 x 20%) payable on the rental income. Dividends are taxed at 8.75%, resulting in £437.50 (£5,000 x 8.75%) payable on the dividend income. Therefore, the estate owes a total of £2,837.50 in income tax on its generated income.
£ Tax rate Tax £ Rental income 12,000.00 20% 2,400.00 Dividends 5,000.00 8.75% 437.50 2,837.50 Incorrect
The personal representatives must pay income tax on any income generated by the estate during the administration period. Rental income is taxed at 20%, resulting in £2,400 (£12,000 x 20%) payable on the rental income. Dividends are taxed at 8.75%, resulting in £437.50 (£5,000 x 8.75%) payable on the dividend income. Therefore, the estate owes a total of £2,837.50 in income tax on its generated income.
£ Tax rate Tax £ Rental income 12,000.00 20% 2,400.00 Dividends 5,000.00 8.75% 437.50 2,837.50 Unattempted
The personal representatives must pay income tax on any income generated by the estate during the administration period. Rental income is taxed at 20%, resulting in £2,400 (£12,000 x 20%) payable on the rental income. Dividends are taxed at 8.75%, resulting in £437.50 (£5,000 x 8.75%) payable on the dividend income. Therefore, the estate owes a total of £2,837.50 in income tax on its generated income.
£ Tax rate Tax £ Rental income 12,000.00 20% 2,400.00 Dividends 5,000.00 8.75% 437.50 2,837.50 -
Question 7 of 9
7. Question
Monica sold a piece of artwork in the tax year 2024/25 that she had owned for several years. She originally purchased the artwork for £5,000. Additionally, she spent £2,000 on marketing the artwork online. She sold the artwork for £30,000. What is Monica's capital gain if assessed in the 2024/25 tax year, after allowable deductions are considered?
Correct
The correct answer is E. To calculate Monica’s capital gain, you subtract the original purchase price and any allowable subsequent expenditure from the sale price. Therefore, Monica’s capital gain is calculated as follows: £30,000 (sale price) – £5,000 (original purchase price) – £2,000 (marketing costs) = £23,000. This £23,000 represents Monica’s capital gain after allowable deductions are considered.
Proceeds 30,000.00 Less: purchase cost – 5,000.00 Less: Marketing cost – 2,000.00 Gain 23,000.00 Incorrect
The correct answer is E. To calculate Monica’s capital gain, you subtract the original purchase price and any allowable subsequent expenditure from the sale price. Therefore, Monica’s capital gain is calculated as follows: £30,000 (sale price) – £5,000 (original purchase price) – £2,000 (marketing costs) = £23,000. This £23,000 represents Monica’s capital gain after allowable deductions are considered.
Proceeds 30,000.00 Less: purchase cost – 5,000.00 Less: Marketing cost – 2,000.00 Gain 23,000.00 Unattempted
The correct answer is E. To calculate Monica’s capital gain, you subtract the original purchase price and any allowable subsequent expenditure from the sale price. Therefore, Monica’s capital gain is calculated as follows: £30,000 (sale price) – £5,000 (original purchase price) – £2,000 (marketing costs) = £23,000. This £23,000 represents Monica’s capital gain after allowable deductions are considered.
Proceeds 30,000.00 Less: purchase cost – 5,000.00 Less: Marketing cost – 2,000.00 Gain 23,000.00 -
Question 8 of 9
8. Question
A solicitor's firm has issued a final bill during the 2024/25 tax year for legal services provided to a client, totaling £5,000 excluding VAT. After submitting the bill, the client raises a valid concern that leads to an agreement to reduce the bill by £500. What is the final amount the client is required to pay, including VAT at a rate of 20%?
Correct
After reducing the bill by £500, the new total before VAT is £4,500. VAT at a rate of 20% on £4,500 is £900 (£4,500 x 20% = £900). Therefore, the final amount the client needs to pay, including VAT, is £4,500 + £900 = £5,400.
Original 5,000.00 Reduction – 500.00 Revised net 4,500.00 Gross 5,400.00 Incorrect
After reducing the bill by £500, the new total before VAT is £4,500. VAT at a rate of 20% on £4,500 is £900 (£4,500 x 20% = £900). Therefore, the final amount the client needs to pay, including VAT, is £4,500 + £900 = £5,400.
Original 5,000.00 Reduction – 500.00 Revised net 4,500.00 Gross 5,400.00 Unattempted
After reducing the bill by £500, the new total before VAT is £4,500. VAT at a rate of 20% on £4,500 is £900 (£4,500 x 20% = £900). Therefore, the final amount the client needs to pay, including VAT, is £4,500 + £900 = £5,400.
Original 5,000.00 Reduction – 500.00 Revised net 4,500.00 Gross 5,400.00 -
Question 9 of 9
9. Question
Thomas passed away during the 2024/25 tax year. After Thomas's death, his executors began the process of calculating the inheritance tax payable on his estate. Thomas had a diverse estate that included a rental property valued at £300,000, a collection of vintage cars worth £250,000, and a stock portfolio valued at £150,000 on the day of his death. Thomas also had outstanding debts of £50,000 and funeral expenses amounting to £10,000. Applying the 2024/25 tax legislation, which answer correctly calculates the net value of Thomas's estate?
Correct
To calculate the net value of Thomas's estate for the purpose of inheritance tax, first, we must add together the values of the rental property, vintage cars, and stock portfolio, which total £700,000. Next, we subtract Thomas's outstanding debts and funeral expenses, which total £60,000 (£50,000 + £10,000). Therefore, the net value of Thomas's estate is £640,000 (£700,000 – £60,000), making option E correct. This net value is used to assess the inheritance tax liability.
£ Rental property 300,000.00 Vintage cars 250,000.00 Stock portfolio 150,000.00 Debts – 50,000.00 Funeral expenses – 10,000.00 640,000.00 Incorrect
To calculate the net value of Thomas's estate for the purpose of inheritance tax, first, we must add together the values of the rental property, vintage cars, and stock portfolio, which total £700,000. Next, we subtract Thomas's outstanding debts and funeral expenses, which total £60,000 (£50,000 + £10,000). Therefore, the net value of Thomas's estate is £640,000 (£700,000 – £60,000), making option E correct. This net value is used to assess the inheritance tax liability.
£ Rental property 300,000.00 Vintage cars 250,000.00 Stock portfolio 150,000.00 Debts – 50,000.00 Funeral expenses – 10,000.00 640,000.00 Unattempted
To calculate the net value of Thomas's estate for the purpose of inheritance tax, first, we must add together the values of the rental property, vintage cars, and stock portfolio, which total £700,000. Next, we subtract Thomas's outstanding debts and funeral expenses, which total £60,000 (£50,000 + £10,000). Therefore, the net value of Thomas's estate is £640,000 (£700,000 – £60,000), making option E correct. This net value is used to assess the inheritance tax liability.
£ Rental property 300,000.00 Vintage cars 250,000.00 Stock portfolio 150,000.00 Debts – 50,000.00 Funeral expenses – 10,000.00 640,000.00