R03 Families, student loans and trust income: free practice questions

1. Question 1 of 5

   How are spouses and civil partners taxed on their income?

   Option A: Jointly, unless they elect to be taxed apartOption B: Separately, each on their own income onlyOption C: On the higher earner's return for bothOption D: Jointly, on their combined income

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   The answer is B: Separately, each on their own income only

   Spouses and civil partners are taxed separately. Marriage mainly matters for CGT and IHT, plus the marriage allowance and, for older couples, the married couple's allowance.

   Why the other options are wrong

   A

   Separate taxation is automatic.

   C

   Each partner deals with their own income.

   D

   Joint taxation of couples no longer applies.

2. Question 2 of 5

   Both parents give money to their 12-year-old son. The resulting income is £180 a year. How is it taxed?

   Option A: It is the son's income, as each parent's share is within £100Option B: £80 is taxed on the parents and the remaining £100 on their sonOption C: All £180 is taxed on the motherOption D: All £180 is taxed on the father

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   The answer is A: It is the son's income, as each parent's share is within £100

   The £100 limit applies per parent, so a joint gift effectively has a £200 limit. Income of £180 from both parents (£90 each) stays the child's.

   Why the other options are wrong

   B

   The £100 test doesn't split income like this.

   C

   Each parent's gift has its own £100 limit.

   D

   Each parent's gift is tested separately against £100.

3. Question 3 of 5

   When is a trust potentially liable to UK income tax on its total income?

   Option A: Only when the trust holds UK assetsOption B: Only when the settlor is UK residentOption C: When at least one trustee is UK residentOption D: Only when all the trustees are UK resident

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   The answer is C: When at least one trustee is UK resident

   A trust with at least one UK-resident trustee generally has potential liability to income tax on its total income.

   Why the other options are wrong

   A

   Residence of the trustees decides liability on total income.

   B

   The test focuses on the trustees.

   D

   One UK-resident trustee is generally enough.

4. Question 4 of 5

   Since 6 April 2024, what happens if a trust's income for the year is £500 or less?

   Option A: It's taxed at 20% whatever the trustOption B: It is taxed on the settlor insteadOption C: No income tax is due on it at allOption D: Only the excess over £500 is exempt

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   The answer is C: No income tax is due on it at all

   A trust with annual income of £500 or less pays no income tax. For discretionary trusts, the £500 is divided between the settlor's trusts (minimum £100 each), and if income exceeds it, all of it is taxable.

   Why the other options are wrong

   A

   The £500 allowance reduces the taxable amount to nil.

   B

   The allowance removes the charge rather than moving it.

   D

   If income is £500 or less, none of it is taxed.

5. Question 5 of 5

   Why might discretionary trustees distribute only 55% of a gross dividend?

   Option A: To let the beneficiary use their own dividend allowanceOption B: Because 45% of every dividend must be accumulatedOption C: To avoid paying extra tax to cover the 45% tax creditOption D: Because the tax pool can't be carried forward

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   The answer is C: To avoid paying extra tax to cover the 45% tax credit

   Trustees pay 39.35% on dividends, but distributions carry a 45% credit. If the tax pool can't cover the gap, the trustees must pay the difference, so distributing no more than 55% of the gross avoids extra tax.

   Why the other options are wrong

   A

   Distributions are trust income, so the dividend allowance can't be used.

   B

   There's no rule requiring 45% to be kept.

   D

   The tax pool can be carried forward to frank later distributions.

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