R04 Contributions and tax relief: free practice questions

1. Question 1 of 5

   Which of these counts as relevant UK earnings for pension tax relief?

   Option A: Interest on a fixed-term bank depositOption B: Rent from a buy-to-let flatOption C: Dividends from the client's own companyOption D: Profits from a sole trader business

   Show answer

   The answer is D: Profits from a sole trader business

   Relevant UK earnings include employment income, trading or professional profits, patent income treated as earned and taxable overseas Crown employment earnings.

   Why the other options are wrong

   A

   Savings interest isn't relevant UK earnings.

   B

   Rental income isn't relevant UK earnings.

   C

   Dividends are investment income, not relevant UK earnings, even from the client's own company.

2. Question 2 of 5

   Abi moved abroad three years ago. She joined her personal pension while UK resident and has no UK earnings now. What relief can she get on contributions this year?

   Option A: Relief on 100% of her overseas earningsOption B: Relief on up to £60,000 grossOption C: Relief on up to £3,600 grossOption D: No relief, as she is non-resident

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   The answer is C: Relief on up to £3,600 gross

   Someone resident in the UK at some time in the previous five tax years, and when they joined the scheme, is a relevant UK individual, but relief is capped at £3,600 a year.

   Why the other options are wrong

   A

   Overseas earnings aren't relevant UK earnings.

   B

   £60,000 is the annual allowance, not her relief limit.

   D

   She still qualifies through the five-year rule.

3. Question 3 of 5

   Before A-Day, how was tax relief given on retirement annuity contract contributions?

   Option A: No relief was available on these contributionsOption B: Contributions were paid gross and relief was claimed backOption C: Contributions were taken from pay before tax by the employerOption D: Contributions were paid net of basic rate tax at source

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   The answer is B: Contributions were paid gross and relief was claimed back

   RAC contributions were paid gross with all relief reclaimed through the tax return or tax code: the relief on making a claim method. Providers may keep this or switch to relief at source.

   Why the other options are wrong

   A

   RAC contributions did attract relief.

   C

   Net pay is used by occupational schemes.

   D

   Relief at source applies to personal and stakeholder pensions.

4. Question 4 of 5

   Carla has a salary sacrifice arrangement. When might she be able to change its terms without losing the tax advantages?

   Option A: Whenever she wants a pay rise in cashOption B: When her partner becomes redundantOption C: Only when she reaches State Pension ageOption D: At any month end by giving notice

   Show answer

   The answer is B: When her partner becomes redundant

   Arrangements are usually irrevocable, but a lifestyle change such as marriage, divorce or a partner's redundancy or pregnancy can allow a change.

   Why the other options are wrong

   A

   Wanting more cash isn't a lifestyle change.

   C

   SPA isn't a recognised trigger.

   D

   Monthly switching would destroy the arrangement's status.

5. Question 5 of 5

   Which of these must all apply for a PCLS to be treated as recycled? 1. The PCLS, with others in the previous 12 months, exceeds £7,500 2. Contributions rise significantly because of the PCLS 3. The recycling was pre-planned 4. The extra contributions are paid by the member personally

   Option A: 1 and 3 onlyOption B: 1, 2, 3 and 4Option C: 2, 3 and 4 onlyOption D: 1, 2 and 3 only

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   The answer is D: 1, 2 and 3 only

   The conditions are the £7,500 trigger, a significant increase in contributions (more than 30%) and pre-planning. Contributions by someone else, such as an employer, also count.

   Why the other options are wrong

   A

   The significant increase test is also required.

   B

   Contributions paid by others, such as an employer, are caught too.

   C

   The £7,500 trigger is a condition, and the payer can be anyone.

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