R03 Cash deposits and fixed-interest securities: free practice questions

1. Question 1 of 5

   Which of these is a direct investment rather than one held through a wrapper?

   Option A: A personal pension fundOption B: Units in an OEIC held within a stocks and shares ISAOption C: An onshore investment bondOption D: A holding of individual gilts in the investor's own name

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   The answer is D: A holding of individual gilts in the investor's own name

   Direct investments include cash deposits, gilts and other fixed-interest securities, individual properties and individual shares. ISAs, collectives, life policies and pensions are wrappers.

   Why the other options are wrong

   A

   A pension is a wrapper.

   B

   Both the ISA and the OEIC are wrappers.

   C

   A life policy is a wrapper.

2. Question 2 of 5

   Which of these statements about tax on bank interest for 2026/27 are correct? 1. It is paid gross. 2. A higher-rate taxpayer has a £500 personal savings allowance. 3. An additional-rate taxpayer has a £500 personal savings allowance. 4. The 0% starting rate only helps if taxable non-savings income is under £5,000.

   Option A: 1, 2 and 3 onlyOption B: 2 and 4 onlyOption C: 1 and 3 onlyOption D: 1, 2 and 4 only

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   The answer is D: 1, 2 and 4 only

   Bank interest is paid gross. The personal savings allowance is £1,000 for basic-rate, £500 for higher-rate and nil for additional-rate taxpayers. The £5,000 starting rate only covers savings falling in the first £5,000 of taxable income.

   Why the other options are wrong

   A

   Additional-rate taxpayers get no personal savings allowance.

   B

   Bank interest is also paid gross.

   C

   Statement 3 is wrong, and statements 2 and 4 are correct.

3. Question 3 of 5

   How is gilt interest taxed for an individual?

   Option A: As dividend income, with the £500 dividend allowanceOption B: Net of 20% tax, which can't be avoidedOption C: Tax-free for all investorsOption D: As savings income, paid gross unless 20% deduction is chosen

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   The answer is D: As savings income, paid gross unless 20% deduction is chosen

   Gilt interest is usually paid gross, twice yearly, and taxed as savings income. Investors can elect for 20% deduction at source, which isn't helpful if the interest falls within allowances.

   Why the other options are wrong

   A

   Gilt interest is savings income.

   B

   Interest is paid gross unless the investor elects otherwise.

   C

   Gilt interest is taxable.

4. Question 4 of 5

   Which statement about qualifying corporate bonds held by an individual is correct?

   Option A: Interest is paid net of 20%, and gains are exemptOption B: Interest is dividend income, and gains are chargeableOption C: Interest is tax-free, but gains are chargeableOption D: Interest is paid gross, and gains are exempt from CGT

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   The answer is D: Interest is paid gross, and gains are exempt from CGT

   Corporate bond interest is paid gross and taxed as savings income. Gains on qualifying corporate bonds are exempt from CGT, and losses aren't allowable.

   Why the other options are wrong

   A

   Corporate bond interest is paid gross.

   B

   Interest is savings income.

   C

   Interest is taxable; gains are exempt.

5. Question 5 of 5

   What will the tax rates on savings income be from 6 April 2027?

   Option A: 10.75%, 35.75% and 39.35%Option B: 20%, 40% and 45%, as in 2026/27Option C: 21%, 41% and 46%Option D: 22%, 42% and 47%

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   The answer is D: 22%, 42% and 47%

   From 6 April 2027, savings income will be taxed at 22% (basic), 42% (higher) and 47% (additional), two points above the 2026/27 rates.

   Why the other options are wrong

   A

   Those are dividend rates.

   B

   The rates rise by two percentage points from April 2027.

   C

   The increase is two percentage points.

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