R03 Shares and dividends: free practice questions

1. Question 1 of 5

   Jenna, a higher-rate taxpayer, receives £3,000 of UK dividends in 2026/27, her only dividends. What tax is due on them?

   Option A: £268.75Option B: £893.75Option C: £1,072.50Option D: £1,000.00

   Show answer

   The answer is B: £893.75

   £500 dividend allowance at 0%, then £2,500 × 35.75% = £893.75.

   Why the other options are wrong

   A

   Dividends in the higher rate band are taxed at 35.75%.

   C

   The first £500 is covered by the dividend allowance.

   D

   The dividend rate is 35.75%, not 40%.

2. Question 2 of 5

   A shareholder takes new shares instead of a cash dividend. How is this stock dividend treated?

   Option A: As a tax-free bonus issue with no base cost, as no cash changes hands at allOption B: As a capital gain when the shares are issuedOption C: As income equal to the cash dividend forgone, which is also the CGT costOption D: As savings income taxed at 20%

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   The answer is C: As income equal to the cash dividend forgone, which is also the CGT cost

   The shareholder is treated as receiving dividend income equal to the cash alternative (or the shares' market value if substantially different). That amount is also the CGT base cost of the new shares.

   Why the other options are wrong

   A

   A stock dividend is taxable income.

   B

   It's income, not a gain.

   D

   It's taxed as dividend income.

3. Question 3 of 5

   How is an investor in an investment trust taxed?

   Option A: As a shareholder, but interest distributions are savings incomeOption B: Only on gains, as income is tax-freeOption C: On the trust's gains each year as they arise in the portfolioOption D: As a trust beneficiary, at the trust rates

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   The answer is A: As a shareholder, but interest distributions are savings income

   An investment trust is a listed company. Investors are taxed on dividends and on gains when they sell their shares, as for other shares, except that interest distributions are taxed as savings income.

   Why the other options are wrong

   B

   Dividends are taxable.

   C

   Investors are taxed on their own disposals of shares.

   D

   An investment trust is a company, not a trust.

4. Question 4 of 5

   Who is entitled to the £500 dividend allowance in 2026/27?

   Option A: Only basic-rate taxpayers, as it's withdrawn above £50,270Option B: Individuals and trusteesOption C: All individual taxpayers, whatever their tax bandOption D: Only basic and higher-rate taxpayers

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   The answer is C: All individual taxpayers, whatever their tax band

   Every individual, whatever their rate band, has a £500 dividend allowance. Trustees don't.

   Why the other options are wrong

   A

   Higher- and additional-rate taxpayers get it too.

   B

   Trustees don't get the dividend allowance.

   D

   Unlike the savings allowance, it applies to all taxpayers.

5. Question 5 of 5

   Joan is a basic-rate taxpayer who has already used her dividend allowance. She receives a further £400 dividend. What tax is due on it?

   Option A: £43Option B: NilOption C: £35Option D: £80

   Show answer

   The answer is A: £43

   With the £500 allowance used, the dividend is taxed at 10.75% in the basic rate band: £400 × 10.75% = £43.

   Why the other options are wrong

   B

   Her allowance is already used.

   C

   The basic dividend rate for 2026/27 is 10.75%.

   D

   Basic-rate dividends are taxed at 10.75%, not 20%.

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