R04 Retirement tax planning and other income sources: free practice questions
5 free questions on Retirement tax planning and other income sources, part of learning outcome 8 (Retirement planning). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
Which of these are advantages of an ISA over a pension for retirement saving?
1. All withdrawals are tax-free
2. No minimum access age
3. Tax relief on contributions
4. Outside the estate for IHT
Show answer
The answer is D: 1 and 2 only
ISA withdrawals are tax-free and accessible at any age. ISAs get no relief on contributions and are in the estate for IHT.
Why the other options are wrong
A
ISAs are within the estate.
B
ISAs get no contribution relief.
C
No relief and IHT inclusion are disadvantages.
Question 2 of 5
Which statement about the Lifetime ISA is correct?
Show answer
The answer is C: It must be opened between 18 and 40, with a 25% bonus on up to £4,000
Opened 18-39, contributions up to £4,000 (within £20,000) get a 25% bonus until 50. Withdrawals before 60 incur 25% unless for a first home or terminal illness.
Why the other options are wrong
A
There's an age limit to open.
B
A 25% charge applies before 60 in most cases.
D
It counts within the £20,000.
Question 3 of 5
A retiree recycles surplus drawdown income back into a pension. Why isn't this caught by the recycling rules?
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The answer is A: The anti-recycling rules apply only to PCLS
Only recycled PCLS is caught. Recycled income can create new PCLS, though relief above £3,600 needs relevant earnings, which pension income isn't.
Why the other options are wrong
B
There's no age exemption.
C
Contributions from income are allowed.
D
The MPAA limits but doesn't prevent it.
Question 4 of 5
Which of these are drawbacks of using a pension fund to buy a buy-to-let property?
1. Higher rate tax on large withdrawals
2. Triggering the MPAA
3. Lack of diversification
4. Mortgage interest relief at the client's top rate
Show answer
The answer is D: 1, 2 and 3 only
Large taxable withdrawals, the MPAA, concentration risk, costs, voids and CGT are drawbacks. Mortgage interest relief is only at basic rate.
Why the other options are wrong
A
Relief is only at basic rate.
B
Statement 4 is wrong.
C
The MPAA is also a drawback.
Question 5 of 5
What is a key drawback of relying on one's own business instead of a pension?
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The answer is C: Earnings and retirement both depend on one business
Concentration risk, sale timing and possibly better alternatives are the drawbacks. Business relief and BADR can make it attractive.
Why the other options are wrong
A
Profits can be reinvested.
B
Business relief often applies.
D
Corporation tax is usually lower than higher rate income tax.
Practise all 16 Retirement tax planning and other income sources questions
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