R03 Disposals of investments: free practice questions
5 free questions on Disposals of investments, part of learning outcome 3 (Tax in financial affairs). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
Why might it be better not to claim holdover relief on a gift that qualifies for business asset disposal relief?
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The answer is C: The donee might not get BADR on their later sale
Holdover relief only defers a gain to the donee. If the donor qualifies for BADR now, paying 18% may be better than deferring a gain that could later be taxed at 24% if the donee doesn't qualify.
Why the other options are wrong
A
Holdover relief defers the gain rather than increasing it.
B
BADR gives a reduced rate, not exemption.
D
Holdover defers the gain; BADR may not be available later.
Question 2 of 5
Which of these achieve a similar result to 'bed and breakfasting' shares without falling foul of the 30-day rule?
1. Selling shares and buying the same shares back inside an ISA
2. One spouse selling shares and the other buying the same shares
3. Selling shares and buying shares in a similar company in the same sector
4. Selling shares and buying them back the next morning in the same account
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The answer is C: 1, 2 and 3 only
Bed and ISA, bed and spouse, and switching to a similar holding all realise a gain or loss without being matched by the 30-day rule. Buying back the same shares in the same name within 30 days is matched.
Why the other options are wrong
A
Statement 1 works; statement 4 doesn't.
B
Switching to a similar company also works.
D
Buying back within 30 days in the same name is caught.
Question 3 of 5
A client wants to give her ISA and part of her pension to her son. What must happen?
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The answer is D: Both must be cashed first; the pension withdrawal may be taxable
ISAs and pensions can't be gifted. ISA encashment is tax-free, but the son can only reinvest within his own ISA limit. Pension withdrawals beyond the tax-free 25% are taxed at the client's marginal rate.
Why the other options are wrong
A
ISAs and pensions can't be gifted directly.
B
Neither can be transferred directly.
C
Neither can be transferred directly.
Question 4 of 5
Ian, a higher-rate taxpayer, faces a £12,000 gain. He moves half the shares to his wife, who has an unused annual exemption and basic rate band, before the sale. How much CGT does this save?
The saving includes both her exemption and the lower rate.
C
His wife still pays some CGT on her half.
D
That's Ian's remaining tax, not the saving.
Question 5 of 5
What is the key difference between reinvesting a gain in EIS shares and in SEIS shares?
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The answer is C: EIS defers the gain; SEIS exempts half of the reinvested gain
EIS reinvestment defers the gain until the EIS shares are sold (or other events). SEIS reinvestment makes 50% of the reinvested gain exempt, up to £200,000. Both are high-risk.
Why the other options are wrong
A
Both can be used for gains on any assets.
B
It's the other way round, broadly.
D
EIS only defers it.
Practise all 12 Disposals of investments questions
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