R03 CGT rates, reliefs, shares and payment: free practice questions

1. Question 1 of 5

   At what rates is CGT charged on an individual's gains in 2026/27, absent any special relief?

   Option A: 24% on all gains whatever the person's incomeOption B: 18% within the basic rate band and 24% above itOption C: 10% within the basic rate band and 20% above itOption D: 20% within the basic rate band and 40% above it

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   The answer is B: 18% within the basic rate band and 24% above it

   Taxable gains are treated as sitting on top of income. The part within the basic rate band is taxed at 18% and the rest at 24%.

   Why the other options are wrong

   A

   24% is the trust rate; individuals may pay 18% within the basic rate band.

   C

   Those were earlier rates for most assets.

   D

   Those are income tax rates, not CGT rates.

2. Question 2 of 5

   Which conditions must a shareholder meet for business asset disposal relief on selling trading company shares?

   Option A: At least 10% of the shares, held for at least three yearsOption B: At least 5% of the shares, held as an external investor for three yearsOption C: At least 5% of the shares and an employee or director, for two yearsOption D: Any shareholding, provided it's in an unlisted trading company

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   The answer is C: At least 5% of the shares and an employee or director, for two years

   For shares, the individual must hold at least 5% and be an employee or director of the trading company, with conditions met for two years before disposal.

   Why the other options are wrong

   A

   The tests are 5% and two years, plus being an employee or director.

   B

   That mixes up BADR with investors' relief.

   D

   There's a 5% test and an employment condition.

3. Question 3 of 5

   Which statement about holdover relief on a gift of business assets is correct?

   Option A: It permanently exempts the gain on the gifted assetOption B: It is available on gifts of shares to a companyOption C: It is given automatically, with no claim neededOption D: It needs a joint claim, and the donee must be UK resident

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   The answer is D: It needs a joint claim, and the donee must be UK resident

   Donor and donee jointly claim (the donor alone for a gift to a trust). The donee must be UK resident; if they leave within six years the gain crystallises, and the donor is liable if the donee doesn't pay.

   Why the other options are wrong

   A

   The gain is deferred to the donee, not exempted.

   B

   Relief isn't available on transfers of shares to a company.

   C

   A claim is required, usually jointly by donor and donee.

4. Question 4 of 5

   Lucy defers a £70,000 gain by subscribing for EIS shares, which she holds until her death. What happens to the deferred gain?

   Option A: It is taxed at 18% in the tax year of her deathOption B: It becomes chargeable on her death and is paid by her estateOption C: It passes to her heirs and is taxed when they eventually sell the sharesOption D: It is never taxed, and her estate takes the shares at market value

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   The answer is D: It is never taxed, and her estate takes the shares at market value

   Deferred EIS gains crystallise on disposal of the shares (other than to a spouse) or emigration within three years. If the investor dies holding them, the deferred gain is never taxed.

   Why the other options are wrong

   A

   There's no charge on death.

   B

   Deferred gains aren't charged on death.

   C

   The deferred gain falls away on death.

5. Question 5 of 5

   How do a bonus issue and a rights issue affect the CGT base cost of a shareholding?

   Option A: Both are treated as brand new holdings with separate costsOption B: A bonus issue adds no cost; a rights issue adds what was paidOption C: A bonus issue adds market value; a rights issue adds nothingOption D: Both add the market value of the new shares to the cost

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   The answer is B: A bonus issue adds no cost; a rights issue adds what was paid

   Bonus shares are treated as acquired with the original holding at no extra cost. Rights issue shares add the subscription price to the pool. Scrip dividend shares are treated as new acquisitions.

   Why the other options are wrong

   A

   Both join the existing holding or pool.

   C

   It's the other way round.

   D

   Bonus shares are free, and rights shares add the price paid.

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