R03 UK life assurance policies and annuities: free practice questions

1. Question 1 of 5

   Which feature is typical of a qualifying life policy?

   Option A: Premiums of over £3,600 a yearOption B: Issued by an offshore life officeOption C: A single premium paid at outset into unit-linked fundsOption D: Regular level premiums paid at least yearly for at least 10 years

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   The answer is D: Regular level premiums paid at least yearly for at least 10 years

   Qualifying policies broadly have regular level premiums, payable at least annually for at least ten years. Since 6 April 2013, an individual's premiums across qualifying policies are capped at £3,600 a year.

   Why the other options are wrong

   A

   Premiums are capped at £3,600 a year for post-2013 policies.

   B

   Offshore policies issued after 1983 are non-qualifying.

   C

   That's a typical non-qualifying investment bond.

2. Question 2 of 5

   Ian paid a single premium of £40,000 into a UK bond and took 5% withdrawals totalling £8,000, none creating a gain. He surrenders it for £45,000. What is the chargeable gain?

   Option A: £45,000Option B: £3,000Option C: £5,000Option D: £13,000

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   The answer is D: £13,000

   Gain = final proceeds + earlier withdrawals − premium − earlier gains: £45,000 + £8,000 − £40,000 = £13,000. 5% withdrawals are tax-deferred, not tax-free.

   Why the other options are wrong

   A

   The premium is deducted.

   B

   Withdrawals are added to, not deducted from, the gain.

   C

   Earlier withdrawals are added back in the final calculation.

3. Question 3 of 5

   What is deficiency relief on a UK life policy?

   Option A: Relief for a final loss against higher rate tax, capped by earlier gainsOption B: Relief for a loss set against capital gains in the same yearOption C: A refund of the life fund's 20% taxOption D: Relief that removes the additional rate on gains

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   The answer is A: Relief for a final loss against higher rate tax, capped by earlier gains

   If a policy ends at a loss, an individual can deduct it from income, but only against higher rate tax (saving 20%) and not beyond earlier chargeable gains taxed in the UK. It doesn't apply to trustees.

   Why the other options are wrong

   B

   The relief is against income, not capital gains.

   C

   That isn't reclaimable.

   D

   It doesn't reduce additional rate tax.

4. Question 4 of 5

   Which annuity can be paid without the recipient being taxed on it?

   Option A: A purchased annuity certain paid to someone who didn't buy itOption B: An annuity paid under a personal injury structured settlementOption C: An annuity bought by a trust for a beneficiary under a willOption D: A pension annuity

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   The answer is B: An annuity paid under a personal injury structured settlement

   Structured settlement annuities for personal injury damages are tax-free, as are immediate needs annuities paid directly to a care provider.

   Why the other options are wrong

   A

   That's wholly taxable.

   C

   Will and trust annuities are taxed in full.

   D

   That's taxable in full.

5. Question 5 of 5

   For how many years can 5% withdrawals be taken from a single premium bond without a chargeable event?

   Option A: 10 years, after which withdrawals are taxableOption B: 20 years, up to 100% of the premiumOption C: 5 yearsOption D: Indefinitely, as long as the bond exists

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   The answer is B: 20 years, up to 100% of the premium

   The 5% annual allowances (cumulative if unused) can total at most 20, i.e. 100% of the premium. Withdrawals within them are tax-deferred and brought into the final gain calculation.

   Why the other options are wrong

   A

   The allowances run for 20 years.

   C

   The allowances run for 20 years.

   D

   The total is capped at 100% of the premium.

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