Personal Tax (FA2016)

Transcription

1 Personal Tax (FA2016) Question and answer book November 2017 AAT is a registered charity. No

2 Questions Question 1 Which one of the following statements is correct? a) Tax evasion is legal but must be reported under the Money Laundering legislation. b) Tax avoidance is unethical and can lead to a criminal conviction. c) Tax evasion may involve suppressing or deliberately falsifying information. d) Tax avoidance should always be disclosed to HMRC. Question 2 The taxpayer is not responsible for submitting their tax return if they employ the services of an accountant, as responsibility will pass to the accountant? True or False? Question 3 What course of action should the accountant take if they discover a large error in a client s tax return? a) Inform the client of the error and leave it to them to correct. b) Inform the client of the error, if not corrected within a reasonable time frame continue to act for the client but report the error to the Money Laundering Reporting Officer. c) Inform HMRC directly of the error and cease to act for the client. d) Inform the client of the error, if not corrected within a reasonable time frame, cease to act for the client. Inform HMRC that you re ceasing to act without disclosing why, and report the error to the Money Laundering Reporting Officer. Question 4 Confidentiality of a client s tax affairs should always be maintained? True or False? 2

3 Question 5 A client s financial advisor asks you to provide the last 3 years accounts for mortgage purposes. Do you: a) Tell the advisor that you will disclose the required information as soon as you have obtained written consent from the client. b) Tell the advisor that he must request the information directly from the client. c) the required information directly to the mortgage provider. d) the required information directly to the advisor. Question 6 An individual that is a non UK resident will: a) Pay tax on their worldwide income and capital gains. b) Pay tax on their worldwide income and UK capital gains. c) Pay tax on UK only income and capital gains. d) Pay tax on UK income. Question 7 Which of the following is an exempt asset for capital gains tax? a) Antique table b) Holiday home c) Car d) Antique necklace Question 8 Transfers to a spouse or civil partner are always deemed to be made at market value. True or False? 3

4 Question 9 Which of the following are connected persons for capital gains transactions? Daughter Aunt Brother s wife Wife s cousin Connected Not connected Question 10 Which of the following is not a capital gains disposal? a) Destruction of an asset, claimed on insurance. b) Transfer of an asset as a result of a gift in a will. c) Sale of an asset at auction. d) A gift of an asset to your daughter. Question 11 Put the following transfers in the correct category for inheritance tax purposes. Gifts of 200 to each grandchild per year Gift of a property to your son Gift of 5,000 to your son to help towards wedding costs Transfer of a property to your husband A gift of 100,000 to your daughter A transfer of 100,000 into a discretionary trust Exempt transfer Potentially exempt transfer Chargeable lifetime transfer 4

5 Question 12 Barbara dies on 1 October 2016, her assets are valued at 600,000, funeral expenses estimated to be 5,000. Barbara has no other debts. She made a transfer of 200,000 to her daughter on 1 October 2015 and her estate left 50% to her husband and 50% to her son. What is Barbara s inheritance tax liability? a) 110,000 b) 108,000 c) 70,000 d) 69,000 Question 13 Match the Inheritance tax liability arising on the following transfers with the person responsible for the payment. Potentially exempt transfer (PET), becoming chargeable due to death within 7 years Donee Chargeable life time transfer Personal representatives Death tax Donor Question 14 An individual has a tax liability for 15/16 of 14,750. The 16/17 tax return has just been completed and a liability of 16,250 has been calculated. Choose from the following the payment amounts due on 31 July 2017, 31 January 2018 and 31 July 2018 is correct? a) 31 July 2017: nil, 31 January 2018: 1,500, 31 July 2018: 8,125 b) 31 July 2017: 8,125, 31 January 2018: 9,625, 31 July 2018: 8,125 c) 31 July 2017: 7,375, 31 January 2018: 9,625, 31 July 2018: 8,125 d) 31 July 2017: 7,375, 31 January 2018: 1,500, 31 July 2018: 8,125 5

6 Question 15 An individual submits their 16/17 tax return on 31 January 2018 and pays the outstanding tax on 31 July, What interest and penalties will be due? a) Penalty: 100, interest: 5% of unpaid tax. b) Penalty: 5% of the tax due, interest: 3% to date payment was made. c) Penalty: 10 per day for a maximum of 90 days, interest: 3% to date payment was made. d) Penalty: 5% of the tax interest: 5% to date payment was made. 6

7 Answers Question 1 Which one of the following statements is correct? a) Tax evasion is legal but must be reported under the Money Laundering legislation. b) Tax avoidance is unethical and can lead to a criminal conviction. c) Tax evasion may involve suppressing or deliberately falsifying information. d) Tax avoidance should always be disclosed to HMRC. Answer c): Tax evasion is illegal and may involve the deliberate suppression or falsification of documents, whereas tax avoidance may be unethical, under certain circumstances, but may also involve legitimate tax planning strategies. Tax avoidance is legal. Question 2 The taxpayer is not responsible for submitting their tax return if they employ the services of an accountant, as responsibility will pass to the accountant? False Answer: an accountant will act as the agent of the tax payer, but the tax payer remains legally responsible for the correct and timely submission of their own tax return. Question 3 What course of action should the accountant take if they discover a large error in a client s tax return? a) Inform the client of the error and leave it to them to correct. b) Inform the client of the error, if not corrected within a reasonable time frame continue to act for the client but report the error to the Money Laundering Reporting Officer. c) Inform HMRC directly of the error and cease to act for the client. d) Inform the client of the error, if not corrected within a reasonable time frame, cease to act for the client. Inform HMRC that you re ceasing to act without disclosing why, and report the error to the Money Laundering Reporting Officer. Answer d): the client should be given a reasonable time frame within which to correct their error, if they refuse to do so then you must cease to act for the client, informing HMRC without disclosing why. Under the money laundering legislation the Money Laundering Reporting Officer must also be informed. 7

8 Question 4 Confidentiality of a client s tax affairs should always be maintained? False Answer: confidentiality may be broken where money laundering is suspected and needs to be reported to the Money Laundering Officer or directly to the National Crime Agency. Question 5 A client s financial advisor asks you to provide the last 3 years accounts for mortgage purposes. Do you: a) Tell the advisor that you will disclose the required information as soon as you have obtained written consent from the client. b) Tell the advisor that he must request the information directly from the client. c) the required information directly to the mortgage provider. d) the required information directly to the advisor. Answer a): under the rules of confidentiality authority to disclose the information must be obtained from the client, preferably in writing. Question 6 An individual that is a non-uk resident will: a) Pay tax on their worldwide income and capital gains. b) Pay tax on their worldwide income and UK capital gains. c) Pay tax on UK only income and capital gains. d) Pay tax on UK income. Answer d): non-uk residents will only pay UK tax on any UK income. UK resident tax payers will pay UK tax on their worldwide income. Question 7 Which of the following is an exempt asset for capital gains tax? a) Antique table b) Holiday home c) Car d) Antique necklace Answer c): cars are always exempt from capital gains tax. 8

9 Question 8 Transfers to a spouse or civil partner are always deemed to be made at market value. False Answer: transfers between spouses / civil partners are made at no gain / no loss. Question 9 Which of the following are connected persons for capital gains transactions? Daughter Aunt Brother s wife Wife s cousin Connected Not connected Question 10 Which of the following is not a capital gains disposal? a) Destruction of an asset, claimed on insurance. b) Transfer of an asset as a result of a gift in a will. c) Sale of an asset at auction. d) A gift of an asset to your daughter. Answer b): transfers of assets under the bequests of a will are considered under inheritance tax and are not capital gains tax disposals. 9

10 Question 11 Put the following transfers in the correct category for inheritance tax purposes. Gifts of 200 to each grandchild per year Gift of a property to your son Gift of 5,000 to your son to help towards wedding costs Transfer of a property to your husband A gift of 100,000 to your daughter A transfer of 100,000 into a discretionary trust Exempt transfer Potentially exempt transfer Chargeable lifetime transfer Gifts of 200 to each grandchild per year Gift of a property to your son A transfer of 100,000 into a discretionary trust Gift of 5,000 to your son to help towards wedding costs A gift of 100,000 to your daughter Transfer of a property to your husband Question 12 Barbara dies on 1 October 2016, her assets are valued at 600,000, funeral expenses estimated to be 5,000. Barbara has no other debts. She made a transfer of 200,000 to her daughter on 1 October 2015 and her estate left 50% to her husband and 50% to her son. What is Barbara s inheritance tax liability? a) 110,000 b) 108,000 c) 70,000 d) 69,000 Answer d): Value of estate at death: 595,000 ( 600,000-5,000) Chargeable death estate: 595,000 x 50% = 297,500 Nil rate band available: 325, ,000 = 125,000 Inheritance tax 125,000 x 0% 0 172,500 x 40% 69,000 69,000 10

11 Question 13 Match the Inheritance tax liability arising on the following transfers with the person responsible for the payment. Potentially exempt transfer (PET), becoming chargeable due to death within 7 years Donee Chargeable life time transfer Personal representatives Death tax Donor Question 14 An individual has a tax liability for 15/16 of 14,750. The 16/17 tax return has just been completed and a liability of 16,250 has been calculated. Which of the following payment amounts due on 31 July 2017, 31 January 2018 and 31 July 2018 is correct? Answer c): a) 31 July 2017: nil, 31 January: ,500, 31 July 2018: 8,125 b) 31 July 2017: 8,125, 31 January 2018: 9,625, 31 July 2018: 8,125 c) 31 July 2017: 7,375, 31 January 2018: 9,625, 31 July 2018: 8,125 d) 31 July 2017: 7,375, 31 January 2018: 1,500, 31 July 2018: 8,125 Due 31 July 2017: 2nd payment on account for 16/17, based on 50% of the tax for 15/16 = 7,375 Due 31 January 2018: balance of tax for 16/17 = 16,250 less 2 payments on account of 7,375 each = total 14,750, resulting in a balance of 1,500. Plus 1st payment on account for 17/18, based on 50% of the 16/17 liability - 16,250 x 50% = 8,125. Total due 9,625 Due 31 July 2018: 2nd payment on account for 17/18, based on 50% of the tax for 16/17 = 8,125 11

12 Question 15 An individual submits their 16/17 tax return on 31 January 2018 and pays the outstanding tax on 31 July, What interest and penalties will be due? a) Penalty: 100, interest: 5% of unpaid tax. b) Penalty: 5% of the tax due, interest: 3% to date payment was made. c) Penalty: 10 per day for a maximum of 90 days, interest: 3% to date payment was made. d) Penalty: 5% of the tax interest: 5% to date payment was made. Answer b): the payment of tax is 3 months late, but paid by 6 months so the penalty applied is 5% of the tax due and interest of 3% from the date the payment was due, until the date it was paid. 12

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