R04 Fund investments and unauthorised payments: free practice questions

1. Question 1 of 5

   How is investment income and growth inside a registered pension scheme taxed?

   Option A: Free of income tax, but with CGT payable on any gains madeOption B: Free of all taxes, including any trading income it earnsOption C: Taxed at 20% on income and at 10% on any capital gainsOption D: Free of income tax and CGT, with no relief for losses

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   The answer is D: Free of income tax and CGT, with no relief for losses

   Investment income and gains are tax-free, but there's no allowance for losses. Trading income is taxable.

   Why the other options are wrong

   A

   Gains aren't subject to CGT.

   B

   Trading income is taxable.

   C

   Investment income and gains aren't taxed.

2. Question 2 of 5

   A SIPP member uses an asset owned by the scheme free of charge. What happens?

   Option A: Nothing, as the asset belongs to the schemeOption B: The scheme automatically loses its registration with HMRCOption C: The asset must be sold by the scheme immediatelyOption D: An income tax charge arises on the member

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   The answer is D: An income tax charge arises on the member

   An income tax charge applies when a scheme investment gives a benefit to the member or an associate, unless the taxable property rules already apply.

   Why the other options are wrong

   A

   Private use by the member is taxed.

   B

   De-registration isn't automatic.

   C

   An immediate sale isn't required.

3. Question 3 of 5

   What is the rate of the unauthorised payments charge?

   Option A: 25%Option B: 45%Option C: 15%Option D: 40%

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   The answer is D: 40%

   The unauthorised payments charge is 40% of the payment. A 15% surcharge may also apply.

   Why the other options are wrong

   A

   25% is the overseas transfer charge.

   B

   45% is the special lump-sum death benefits charge.

   C

   15% is the surcharge.

4. Question 4 of 5

   Ivan's scheme is worth £200,000. He receives an unauthorised payment of £60,000. What are the total member charges?

   Option A: £27,000Option B: £9,000Option C: £33,000Option D: £24,000

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   The answer is C: £33,000

   The payment is 30% of his rights, so both apply: 40% charge (£24,000) plus 15% surcharge (£9,000) = £33,000.

   Why the other options are wrong

   A

   £27,000 isn't produced by the rules.

   B

   £9,000 is the surcharge alone.

   D

   £24,000 ignores the surcharge, which applies as the 25% threshold is passed.

5. Question 5 of 5

   If HMRC withdraws a scheme's registration, what charge applies?

   Option A: 15% of the fund value, payable by each of the membersOption B: 45% of all payments made by the scheme in the tax yearOption C: 25% of the fund value, payable by the employerOption D: 40% of the fund value, payable by the scheme administrator

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   The answer is D: 40% of the fund value, payable by the scheme administrator

   The de-registration charge is 40% of the funds held immediately before registration is withdrawn, payable by the scheme administrator.

   Why the other options are wrong

   A

   The rate is 40% and falls on the administrator.

   B

   It's charged on the fund value, not payments.

   C

   The employer isn't liable.

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