R03 CGT and trusts: free practice questions

1. Question 1 of 5

   Pete transfers shares into a discretionary trust he isn't able to benefit from. What is the CGT position for Pete?

   Option A: It's a disposal at market value, but he can hold over the gainOption B: It isn't a disposal, as he's only settling the sharesOption C: It is a disposal at cost, so no gain can ariseOption D: It is a disposal, and holdover relief is never available

   Show answer

   The answer is A: It's a disposal at market value, but he can hold over the gain

   Settling assets on trust is a disposal at market value by the settlor. For a relevant property trust that isn't settlor-interested, the gain can be held over to the trustees.

   Why the other options are wrong

   B

   Creating a trust is a disposal at market value.

   C

   Market value is used, not cost.

   D

   Holdover is available for relevant property trusts that aren't settlor-interested.

2. Question 2 of 5

   A trust's chargeable gain for 2026/27 is £20,000. The settlor has created four trusts in total since 1978. What CGT do the trustees pay?

   Option A: £4,710Option B: £4,440Option C: £3,532.50Option D: £4,800

   Show answer

   The answer is A: £4,710

   Exemption = £1,500 ÷ 4 = £375. Taxable gain = £19,625 × 24% = £4,710.

   Why the other options are wrong

   B

   With four trusts, the exemption is £375, not £1,500.

   C

   Trustees pay 24% on all gains, not 18%.

   D

   The trust still gets a reduced exemption of £375.

3. Question 3 of 5

   How are gains taxed in a trust for a vulnerable beneficiary where the special treatment is claimed?

   Option A: They are exempt while the beneficiary is aliveOption B: At 18% on all the gains, whatever the incomeOption C: As if the gains were the beneficiary's, so 18% may applyOption D: At 24%, with the usual half-size trust exemption

   Show answer

   The answer is C: As if the gains were the beneficiary's, so 18% may apply

   The trustees can reduce their CGT to what the beneficiary would have paid. Gains within the beneficiary's basic rate band are taxed at 18%, and the full £3,000 exemption may be used.

   Why the other options are wrong

   A

   Gains are taxable, but at the beneficiary's rates.

   B

   Gains falling above the beneficiary's basic rate band are still at 24%.

   D

   The special treatment lets the beneficiary's position apply.

4. Question 4 of 5

   Discretionary trustees appoint shares to a beneficiary at a gain. What relief is available?

   Option A: Holdover relief, on a joint election by trustees and beneficiaryOption B: Private residence relief, if the shares are held long termOption C: None, as trust appointments are always taxed at 24% without any reliefOption D: Business asset disposal relief at 18%

   Show answer

   The answer is A: Holdover relief, on a joint election by trustees and beneficiary

   Transfers out of discretionary (relevant property) trusts can always be held over, because they're potentially chargeable to IHT. Trustees and beneficiary make a joint election. Losses can be passed to the beneficiary.

   Why the other options are wrong

   B

   PRR is for dwellings occupied by a beneficiary.

   C

   Gains on transfers out of discretionary trusts can always be held over.

   D

   BADR isn't how trust appointments are relieved.

5. Question 5 of 5

   Holdover relief was claimed on a gift to a trust in which the settlor had no interest. What happens if the settlor later gains an interest?

   Option A: Nothing, as the relief was valid when it was claimedOption B: The relief can be clawed back if it happens within six yearsOption C: The trust is taxed at 45% on the held-over gainOption D: The relief is clawed back only on winding up the trust

   Show answer

   The answer is B: The relief can be clawed back if it happens within six years

   If the settlor acquires an interest (or arrangements are made for this) within six years after the end of the tax year of the transfer, the holdover relief is withdrawn.

   Why the other options are wrong

   A

   Relief can be clawed back within the clawback period.

   C

   The held-over gain is clawed back, not taxed at 45%.

   D

   Acquiring an interest within the period is enough.

R0 Exam Prep is an independent revision tool. It is not produced, endorsed by or affiliated with the Chartered Insurance Institute (CII). Questions and explanations are original. Use it alongside the official study text. About R0 Exam Prep