R03 Offshore bonds and policies in trust: free practice questions
5 free questions on Offshore bonds and policies in trust, part of learning outcome 2 (Taxation of investments). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
How is a gain on an offshore bond taxed compared with a UK bond, for a UK-resident individual?
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The answer is C: At 20%, 40% or 45%, with no basic rate credit
Offshore bonds roll up largely free of tax (gross roll-up), but gains are taxed at the policyholder's full rates, including basic rate, with no credit. UK bonds suffer 20% in the fund but carry a credit.
Why the other options are wrong
A
Offshore bonds generally get no basic rate credit.
B
Gains are taxable when they arise.
D
Bond gains are taxed as income.
Question 2 of 5
What penal charge applies to a personal portfolio bond?
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The answer is C: A deemed gain of 15% of premiums a year, with no top-slicing relief
Personal portfolio bonds are taxed on a deemed gain of 15% of total premiums (compounding) each policy year, regardless of actual growth, with no top-slicing relief, on top of the normal rules.
Why the other options are wrong
A
It's a deemed gain.
B
There's a deemed annual gain.
D
The penalty is an annual deemed gain.
Question 3 of 5
A client pays regular premiums on a policy held in a discretionary trust for her children. Which exemption could cover the premiums for IHT?
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The answer is D: The normal expenditure out of income exemption
Each premium into the trust is a transfer of value. Regular premiums paid from surplus income without affecting the standard of living can be exempt as normal expenditure; otherwise the annual exemption may help.
Why the other options are wrong
A
The spouse exemption only covers gifts to the spouse.
B
That can't be used for gifts into trust.
C
Premiums aren't business property.
Question 4 of 5
When must an offshore life office appoint a UK tax representative?
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The answer is D: When its UK-resident policyholders' policies exceed £1m of premiums
Offshore offices with UK-resident policyholders whose policies exceed £1m of premiums must appoint a UK tax representative to issue chargeable event certificates, unless they agree an information-sharing arrangement with HMRC.
Why the other options are wrong
A
It's a standing requirement above £1m.
B
The trigger is £1m of premiums.
C
They must report or appoint a representative.
Question 5 of 5
How are premiums paid into a policy held in trust treated for IHT?
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The answer is C: PETs for a bare trust; CLTs for most other trusts
Premiums into a bare trust are PETs; into most other trusts they're CLTs (taxed at 20% above the nil rate band). Normal expenditure and annual exemptions often cover regular premiums. Pre-2006 IIP trust premiums are generally PETs.
Why the other options are wrong
A
Gifts into most trusts are CLTs.
B
It's the other way round.
D
Premiums are transfers of value unless an exemption applies.
Practise all 18 Offshore bonds and policies in trust questions
These are 5 of the 18 questions on this topic in R0 Exam Prep, and the full R03 bank covers every learning outcome. Practise free, track your weak areas and sit timed mocks.
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