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ICAEW Principles of Taxation study materials
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ICAEW Principles of Taxation (ICAEW) practice questions

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Question 1Principles of Taxation

Under the UK tax system, which body is responsible for the administration and collection of most taxes, including income tax and corporation tax?

  1. The Bank of England
  2. The Office for Budget Responsibility
  3. HM Treasury
  4. HM Revenue and Customs Correct answer.

Explanation

HMRC is the government department that administers and collects the main taxes such as income tax, corporation tax, VAT and capital gains tax. HM Treasury sets overall fiscal policy but does not collect tax.

Question 2Principles of Taxation

Which of the following best describes the principle of 'annuality' in the UK tax system?

  1. Taxpayers must file a return every year regardless of income
  2. Each tax year's income and gains are assessed separately and tax rates are set for that year Correct answer.
  3. Tax rates automatically rise with inflation each year
  4. Tax must be paid in twelve equal monthly instalments

Explanation

Annuity means that income tax and capital gains tax are charged by reference to a defined tax year (6 April to 5 April), and Parliament sets the rates and allowances for each year. Income and gains of one year are generally not aggregated with those of another.

Question 3Principles of Taxation

For the tax year 2024/25, what is the standard personal allowance available to most UK resident individuals?

  1. £15,000
  2. £12,570 Correct answer.
  3. £8,500
  4. £10,000

Explanation

The standard personal allowance for 2024/25 is £12,570. It has been frozen at this level since 2021/22. The allowance is reduced for individuals with adjusted net income above £100,000.

Question 4Principles of Taxation

A UK resident individual has adjusted net income of £110,000 in 2024/25. By how much is their personal allowance reduced?

  1. Nil
  2. £5,000 Correct answer.
  3. £10,000
  4. £12,570

Explanation

The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. Income of £110,000 is £10,000 above the threshold, so the allowance falls by £5,000.

Question 5Principles of Taxation

Which of the following sources of income is generally exempt from UK income tax?

  1. Interest on a standard building society account
  2. Interest on a National Savings and Investments Premium Bond prize Correct answer.
  3. Dividends from a UK company
  4. Rental income from a let property

Explanation

Premium Bond prizes are exempt from income tax and capital gains tax. Interest, dividends and rental profits are all chargeable sources of income subject to the relevant rules and allowances.

Question 6Principles of Taxation

In 2024/25, what is the maximum personal savings allowance available to a higher-rate taxpayer?

  1. Nil
  2. £500 Correct answer.
  3. £5,000
  4. £1,000

Explanation

The personal savings allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nil for additional-rate taxpayers. A higher-rate taxpayer therefore receives £500.

Question 7Principles of Taxation

For 2024/25, what is the annual dividend allowance available to an individual?

  1. £2,000
  2. £1,000
  3. £5,000
  4. £500 Correct answer.

Explanation

The dividend allowance was reduced to £500 for 2024/25. Dividends within the allowance are taxed at nil, though they still count towards the individual's basic or higher rate bands.

Question 8Principles of Taxation

Which of the following is a taxable supply for VAT purposes?

  1. A standard-rated supply of office furniture by a VAT-registered trader Correct answer.
  2. The provision of education by an eligible school
  3. The letting of a residential property under an exempt lease
  4. The sale of shares in a company

Explanation

Standard-rated supplies of goods such as office furniture by a VAT-registered business are taxable for VAT. The sale of shares, eligible education and most residential lettings are exempt supplies.

Question 9Principles of Taxation

A VAT-registered business makes a standard-rated sale of £2,400 (VAT-exclusive) to a UK customer in 2024/25. What is the VAT charged at the standard rate of 20%?

  1. £400
  2. £480 Correct answer.
  3. £600
  4. £240

Explanation

VAT at the standard rate is 20% of the VAT-exclusive consideration. 20% of £2,400 is £480, giving a VAT-inclusive total of £2,880.

Question 10Principles of Taxation

Which of the following best describes the VAT registration threshold for a UK business in 2024/25?

  1. £50,000 of taxable turnover in a rolling 12-month period
  2. £150,000 of taxable turnover in a calendar year
  3. £90,000 of taxable turnover in any rolling 12-month period Correct answer.
  4. £85,000 of total turnover regardless of VAT status

Explanation

The VAT registration threshold is £90,000 of taxable turnover over any rolling 12-month period. A business must register if it exceeds this threshold or expects to do so in the next 30 days.

Question 11Principles of Taxation

A sole trader has taxable trading profits of £30,000 in 2024/25. Assuming no other income and full personal allowance, what income tax is payable?

  1. £3,486 Correct answer.
  2. £4,000
  3. £6,000
  4. £2,486

Explanation

Taxable income after the £12,570 personal allowance is £17,430. This is taxed at the basic rate of 20%, giving £3,486. The basic rate band of £37,700 is not exceeded.

Question 12Principles of Taxation

In 2024/25, what is the basic rate of income tax applied to non-savings, non-dividend income within the basic rate band?

  1. 45%
  2. 20% Correct answer.
  3. 40%
  4. 25%

Explanation

The basic rate of income tax on non-savings, non-dividend income is 20% for 2024/25. The 40% and 45% rates apply to higher and additional rate bands respectively.

Question 13Principles of Taxation

Which of the following statements about the personal savings allowance is correct for a basic-rate taxpayer in 2024/25?

  1. Savings income up to £500 is taxed at nil
  2. Savings income up to £1,000 is taxed at nil Correct answer.
  3. Savings income is always taxed at 20%
  4. Savings income up to £5,000 is taxed at 0%

Explanation

A basic-rate taxpayer is entitled to a personal savings allowance of £1,000, meaning the first £1,000 of savings income is taxed at 0%. The allowance does not apply to additional-rate taxpayers.

Question 14Principles of Taxation

A UK resident individual disposes of a residential property in 2024/25 making a chargeable gain of £40,000. They have no other gains and the annual exempt amount is £3,000. What is the taxable gain?

  1. £34,000
  2. £40,000
  3. £3,000
  4. £37,000 Correct answer.

Explanation

The annual exempt amount of £3,000 is deducted from the chargeable gain. £40,000 less £3,000 gives a taxable gain of £37,000.

Question 15Principles of Taxation

For 2024/25, what is the annual exempt amount for capital gains tax for most individuals?

  1. £3,000 Correct answer.
  2. £6,000
  3. £12,300
  4. £1,000

Explanation

The annual exempt amount for capital gains tax was reduced to £3,000 for 2024/25. Gains up to this amount are free of CGT, and unused amounts cannot be carried forward.

Question 16Principles of Taxation

Which of the following best describes the purpose of the trading and property allowance of £1,000 in 2024/25?

  1. It allows £1,000 of trading or property income to be received tax-free in place of deducting expenses Correct answer.
  2. It is an additional personal allowance for married couples
  3. It is a capital allowance for plant and machinery
  4. It is the threshold above which VAT registration is required

Explanation

The trading and property allowances each allow the first £1,000 of relevant income to be tax-free. The taxpayer can choose this instead of deducting actual allowable expenses when that is more beneficial.

Question 17Principles of Taxation

A company makes a trading profit of £200,000 in its accounting period ending 31 March 2025. What is the corporation tax liability at the main rate of 25%?

  1. £40,000
  2. £50,000 Correct answer.
  3. £25,000
  4. £38,000

Explanation

Profits of £200,000 exceed the £250,000 upper limit for marginal relief, so the main rate of 25% applies. 25% of £200,000 is £50,000.

Question 18Principles of Taxation

For 2024/25, the small profits rate of corporation tax of 19% applies to which level of taxable profits?

  1. Profits above £250,000
  2. All profits regardless of amount
  3. Profits of £50,000 or less Correct answer.
  4. Profits between £50,001 and £250,000

Explanation

The small profits rate of 19% applies where taxable profits are £50,000 or less. Profits between £50,001 and £250,000 are subject to marginal relief, and profits above £250,000 pay the main rate of 25%.

Question 19Principles of Taxation

Which of the following best explains why the UK tax system uses a progressive rate structure for income tax?

  1. To ensure all taxpayers pay the same amount
  2. To discourage saving and investment
  3. To reduce the administrative burden on HMRC
  4. To align the tax burden with the ability-to-pay principle Correct answer.

Explanation

Progressive rates mean higher marginal rates apply to higher slices of income, reflecting the ability-to-pay principle of equity. Those with greater income contribute a larger proportion.

Question 20Principles of Taxation

An employee receives a company car benefit. Which of the following factors primarily determines the taxable benefit for the car?

  1. The employee's salary level
  2. The list price of the car and its CO2 emissions Correct answer.
  3. The distance from home to work
  4. The number of passengers carried

Explanation

The company car benefit is calculated using the car's list price and a percentage based on CO2 emissions. The percentage is applied to the list price to determine the taxable benefit.

Question 21Principles of Taxation

A self-employed trader makes a trading loss of £20,000 in 2024/25 and has other income of £50,000 in the same year. Under the default rule, how can the loss be relieved?

  1. Set against total income of the same tax year
  2. Carried forward against future profits of the same trade Correct answer.
  3. Set against capital gains of the same year
  4. Surrendered to a group company

Explanation

Under the default rule for trading losses, losses are carried forward against future profits of the same trade. Other reliefs, such as sideways relief against total income, require a claim and specific conditions.

Question 22Principles of Taxation

Which of the following describes the 'wholly and exclusively' rule for deductibility of expenses in a trade?

  1. An expense must be capital in nature to be deductible
  2. An expense must be incurred wholly and exclusively for the purposes of the trade to be deductible Correct answer.
  3. An expense must benefit the owner personally to be deductible
  4. An expense must be approved by HMRC in advance

Explanation

For an expense to be deductible in computing trading profits, it must be incurred wholly and exclusively for the purposes of the trade. Capital expenditure and private expenditure are generally not deductible.

Question 23Principles of Taxation

An individual sells a painting held as a personal investment for £30,000, having bought it for £10,000. What is the chargeable gain before the annual exempt amount?

  1. £30,000
  2. £10,000
  3. £20,000 Correct answer.
  4. Nil

Explanation

The chargeable gain is the disposal proceeds less the allowable acquisition cost. £30,000 less £10,000 gives a gain of £20,000, before deducting the annual exempt amount.

Question 24Principles of Taxation

Which of the following best describes the difference between tax avoidance and tax evasion?

  1. Avoidance applies only to companies, while evasion applies only to individuals
  2. Both are illegal and treated identically
  3. Avoidance is illegal, while evasion is legal
  4. Avoidance uses legal arrangements to reduce tax, while evasion involves illegal concealment or misrepresentation Correct answer.

Explanation

Tax avoidance involves using legal arrangements to reduce tax liability, though some schemes may be challenged under anti-avoidance rules. Tax evasion involves illegal conduct such as concealing income or making false statements.

Question 25Principles of Taxation

A VAT-registered business makes only exempt supplies. Which of the following best describes its ability to recover input VAT?

  1. It can recover input VAT only on capital items
  2. It can recover input VAT at the reduced rate
  3. It can recover all input VAT in full
  4. It generally cannot recover input VAT because it makes exempt supplies Correct answer.

Explanation

Businesses making only exempt supplies are not entitled to recover input VAT, because exempt supplies do not carry output VAT. Partial exemption rules apply to businesses making both taxable and exempt supplies.

Question 26Principles of Taxation

Which body is responsible for setting the rates and allowances of UK income tax each year, and through what mechanism are they normally enacted?

  1. The Office of Tax Simplification, through published recommendations
  2. HM Revenue & Customs, by issuing a statutory instrument
  3. The Bank of England, through its Monetary Policy Committee
  4. The Treasury, through an annual Finance Act passed by Parliament Correct answer.

Explanation

Tax rates and allowances are set by the Treasury and take legal effect only once enacted in a Finance Act following the Budget. HMRC administers the tax but does not set rates, and the Bank of England has no role in tax legislation.

Question 27Principles of Taxation

A UK resident individual receives rental income and wants to know which tax is charged on it. Into which income category does property rental income fall for income tax purposes?

  1. Savings income
  2. Miscellaneous income
  3. Property income Correct answer.
  4. Trading income

Explanation

Rental receipts from land and buildings in the UK are charged as property income under the property income rules, computed on a tax year basis. They are not trading income unless the activity amounts to a trade, and they are not savings or miscellaneous income.

Question 28Principles of Taxation

Which of the following best describes the UK self assessment filing deadline for an individual who files a paper return for a tax year?

  1. 31 October following the end of the tax year Correct answer.
  2. 31 January following the end of the tax year
  3. 5 April following the end of the tax year
  4. 31 July following the end of the tax year

Explanation

Paper self assessment returns must be filed by 31 October after the end of the tax year, whereas online returns are due by 31 January. The 31 January date therefore applies to electronic filing, not paper filing.

Question 29Principles of Taxation

An employee is provided with private medical insurance paid for by the employer. How is this treated for income tax purposes?

  1. It is taxable only if the employee requested the cover
  2. It is taxable only if the employee earns over £100,000
  3. It is exempt because it is a staff welfare benefit
  4. It is a taxable benefit in kind reported on the employee's P11D Correct answer.

Explanation

Employer-paid private medical insurance is a taxable benefit in kind unless a specific exemption applies, and it is normally reported on form P11D. The taxable amount is generally the cost to the employer, and no earnings threshold or employee request is required.

Question 30Principles of Taxation

Which of the following statements correctly describes the UK capital gains tax treatment of transfers between spouses or civil partners who are living together?

  1. The transfer is a disposal at no gain and no loss, so the recipient takes over the transferor's base cost Correct answer.
  2. The transfer is taxable on the transferor at the date of transfer
  3. The transfer is treated as made at market value, giving rise to a gain or loss
  4. The transfer is exempt and the recipient's base cost becomes nil

Explanation

Transfers of assets between spouses or civil partners living together are treated as made for consideration giving rise to neither a gain nor a loss. The transferee inherits the transferor's original acquisition cost and date of acquisition.

Question 31Principles of Taxation

Which of the following best describes the role of a double taxation agreement between the UK and another country?

  1. It removes all UK tax on income arising in the other country
  2. It allocates taxing rights and provides relief so the same income is not fully taxed twice Correct answer.
  3. It applies only to companies and not to individuals
  4. It replaces the need for the taxpayer to file a UK return

Explanation

Double taxation agreements allocate taxing rights between states and provide relief mechanisms such as credits or exemptions to prevent double taxation. They do not generally eliminate all UK tax, nor do they remove filing obligations, and they cover individuals as well as companies.

Question 32Principles of Taxation

Which of the following best explains the difference between a tax deduction and a tax credit in the UK system?

  1. A deduction applies only to companies, while a credit applies only to individuals
  2. A deduction reduces taxable income, while a credit reduces the tax liability itself Correct answer.
  3. A deduction reduces the tax liability, while a credit reduces taxable income
  4. Both reduce taxable income by the same amount

Explanation

A deduction is subtracted from income before tax is calculated, so its value depends on the marginal rate. A credit is set against the resulting tax liability, so its value is normally the amount of the credit itself.

Question 33Principles of Taxation

Which of the following best describes how the UK tax system treats the personal allowance for an individual who is a Scottish taxpayer?

  1. The personal allowance is set by the Scottish Parliament and differs from the rest of the UK
  2. Scottish taxpayers receive no personal allowance
  3. The personal allowance is doubled for Scottish taxpayers
  4. The personal allowance is the same UK-wide, while Scottish rates and bands apply to non-savings, non-dividend income Correct answer.

Explanation

The personal allowance is a UK-wide allowance set by Westminster, but the Scottish Parliament sets rates and bands for non-savings, non-dividend income of Scottish taxpayers. Savings and dividend income remain subject to UK-wide rates.

Question 34Principles of Taxation

A UK company makes a chargeable gain of £500,000 on the disposal of an investment property in 2024/25. What rate of corporation tax on chargeable gains applies to the gain?

  1. A flat 20% rate for all companies
  2. The main rate of corporation tax applicable to the company Correct answer.
  3. A flat 10% rate for all companies
  4. The rate of capital gains tax applicable to individuals

Explanation

Companies do not pay capital gains tax; chargeable gains are included in the company's profits and taxed at the applicable corporation tax rate. The rate therefore depends on the company's profits and any marginal relief, not a separate flat rate.

Question 35Principles of Taxation

An individual has net income of £60,000 in 2024/25, all from employment. What is the effective value of the personal allowance to this taxpayer, given the income limit of £100,000 has not been reached?

  1. £12,570 reduced by £1 for every £2 of income above £50,270
  2. £6,285, because the allowance is halved above £50,270
  3. £0, because the allowance is fully tapered above £50,270
  4. £12,570, because the full allowance is available Correct answer.

Explanation

The personal allowance is only tapered once adjusted net income exceeds £100,000, at £1 for every £2 above that limit. At £60,000 the taxpayer retains the full allowance of £12,570. The £50,270 figure is the upper limit of the basic rate band, not the taper threshold.

Question 36Principles of Taxation

A trader with a 31 December year end prepares accounts to 31 December 2024. For 2024/25, how are the trading profits of this trader generally determined under the tax year basis rules?

  1. By reference to the accounts for the year ended 31 December 2024 Correct answer.
  2. By reference to the accounts for the year ended 31 December 2023 only
  3. By reference to the accounts for the year ended 5 April 2025
  4. By averaging the profits of the two years ending in the tax year

Explanation

Under the tax year basis, profits of a tax year are generally those of the accounting period ending in that tax year. For a 31 December year end, the period ending 31 December 2024 falls in 2024/25, so those accounts are used.

Question 37Principles of Taxation

An individual makes a gift of quoted shares to an adult child. The shares cost £5,000 and are worth £20,000 at the date of gift. What is the chargeable gain arising on the gift for capital gains tax purposes?

  1. £0, because gifts to family members are exempt
  2. £5,000, because the gain is limited to the original cost
  3. £20,000, because the whole value is chargeable
  4. £15,000, because the disposal is deemed at market value Correct answer.

Explanation

A gift is a disposal for capital gains tax purposes and is treated as made at market value, so the gain is £20,000 less £5,000, being £15,000. Gifts to family members are not exempt, although holdover relief may be available in limited circumstances.

Question 38Principles of Taxation

A VAT-registered business incurs VAT on a business entertainment expense for UK clients. How is the input VAT generally treated?

  1. It is recoverable at 50% of the VAT incurred
  2. It is generally blocked and not recoverable, subject to limited exceptions Correct answer.
  3. It is recoverable only if the clients are overseas
  4. It is fully recoverable as input tax

Explanation

Input VAT on business entertainment of UK clients is generally blocked and cannot be recovered. Limited exceptions exist, for example for certain overseas customers and for employees where the entertainment is not incidental to client entertainment.

Question 39Principles of Taxation

An employer provides an employee with a loan of £15,000 at an interest rate below the official rate. Which of the following best describes the tax treatment?

  1. No benefit arises because the loan is below £10,000
  2. A benefit arises only if the loan is used to buy shares in the employer
  3. The whole loan is taxable as employment income in the year it is made
  4. A taxable benefit arises on the difference between the official rate and the rate charged Correct answer.

Explanation

A beneficial loan gives rise to a taxable benefit equal to the interest at the official rate less any interest actually paid. The £10,000 de minimis applies to the balance outstanding, so a £15,000 loan exceeds it. The loan principal is not itself taxable income.

Question 40Principles of Taxation

A company has taxable profits of £60,000 for its accounting period ending 31 March 2025. Which statement best describes the corporation tax treatment?

  1. The main rate of 25% applies to the whole amount
  2. No corporation tax is payable because profits are below £100,000
  3. The small profits rate of 19% applies to the whole amount Correct answer.
  4. Marginal relief applies, giving an effective rate between 19% and 25%

Explanation

The small profits rate of 19% applies where taxable profits are at or below the £50,000 lower limit, and marginal relief applies between £50,000 and £250,000. At £60,000 the company falls in the marginal relief band, so the effective rate lies between 19% and 25%.

Question 41Principles of Taxation

An individual sells a chattel for £9,000 having bought it for £3,000. What is the chargeable gain for capital gains tax purposes?

  1. £3,000, because chattels are taxed on a reducing basis
  2. £6,000, because the disposal proceeds are below £6,000
  3. £6,000, because the gain is proceeds less cost Correct answer.
  4. Nil, because chattels worth under £6,000 are exempt

Explanation

A chattel is a tangible movable asset, and where both proceeds and cost are within the £6,000 limit the normal proceeds-less-cost computation applies. The £6,000 exemption applies only where proceeds do not exceed £6,000, and here proceeds are £9,000. The marginal relief rules for chattels apply where proceeds exceed £6,000 but the gain is restricted.

Question 42Principles of Taxation

Which of the following best describes the UK tax treatment of a premium received by a landlord on the grant of a short lease of less than 50 years?

  1. Part of the premium is treated as property income, with the balance treated as a capital receipt Correct answer.
  2. The whole premium is exempt from income tax
  3. The premium is taxed only as savings income
  4. The whole premium is treated as a capital receipt

Explanation

Where a lease of 50 years or less is granted, part of any premium is treated as property income under a formula reflecting the lease term, and the remainder is a capital receipt. This prevents premiums being used to convert income into capital.

Question 43Principles of Taxation

An individual makes a qualifying gift of shares in a trading company to a charity. Which relief is most relevant to the capital gain arising?

  1. Business asset disposal relief
  2. Gift relief for gifts to charities, which exempts the gain Correct answer.
  3. Holdover relief for gifts of business assets
  4. Entrepreneurs' relief on the charity's acquisition

Explanation

A disposal of qualifying shares to a charity is treated as made at no gain and no loss, so no chargeable gain arises. This is distinct from holdover relief, which defers rather than eliminates a gain.

Question 44Principles of Taxation

Which of the following best describes the UK tax treatment of a payment made under a registered pension scheme by an employer into an employee's pension?

  1. It is taxable as employment income in the year of payment
  2. It is exempt only if the employee contributes an equal amount
  3. It is taxable only if the employee is a higher-rate taxpayer
  4. It is generally exempt as employment income and deductible for the employer, subject to the annual allowance rules Correct answer.

Explanation

Employer pension contributions are generally not taxable as employment income for the employee and are deductible for the employer, subject to the annual allowance and other limits. The employee's marginal rate does not determine taxability, and matching contributions are not required.

Question 45Principles of Taxation

A VAT-registered business makes a sale to a customer in the EU and the goods leave the UK. Which of the following best describes the VAT treatment of the supply?

  1. It is exempt because the goods leave the UK
  2. It is standard-rated in the UK because the customer is in the EU
  3. It is outside the scope of VAT entirely
  4. It is generally zero-rated as an export of goods from the UK Correct answer.

Explanation

The export of goods from the UK is generally zero-rated, provided the conditions for export evidence are met. Zero-rating applies to the export itself, while the customer's location does not make the supply standard-rated.

Question 46Principles of Taxation

An individual has £3,000 of unused capital losses brought forward and makes a chargeable gain of £10,000 in 2024/25. Assuming the annual exempt amount is available, what is the taxable gain?

  1. £0
  2. £10,000
  3. £3,000
  4. £7,000 Correct answer.

Explanation

Brought-forward capital losses are set against gains before the annual exempt amount is deducted. Gains of £10,000 less losses of £3,000 give £7,000, and the annual exempt amount then reduces the taxable gain further. The question asks for the gain after losses, before the exemption.

Question 47Principles of Taxation

Which of the following best explains why the UK operates a system of tax reliefs for charitable donations made by individuals under Gift Aid?

  1. To allow charities to reclaim basic rate tax on donations and to give higher-rate relief to donors Correct answer.
  2. To exempt donors from all income tax in the year of donation
  3. To tax the charity on the donation at the basic rate
  4. To replace the need for charities to register with HMRC

Explanation

Gift Aid allows charities to reclaim the basic rate tax treated as paid on a donation, while donors can obtain higher or additional rate relief through their self assessment. It does not exempt donors from income tax generally, nor does it replace charity registration.

Question 48Principles of Taxation

A company has augmented profits of £300,000 and taxable profits of £200,000 for its accounting period. How does the associated companies rule affect the corporation tax rate?

  1. It has no effect because the company's profits exceed £250,000
  2. It exempts the company from corporation tax
  3. It reduces the upper and lower profit limits by dividing them by the number of associated companies Correct answer.
  4. It increases the small profits rate to 25%

Explanation

Where a company has associated companies, the £50,000 and £250,000 limits are divided by the number of associated companies plus one. This can push a company into marginal relief or the main rate even where its own profits are modest.

Question 49Principles of Taxation

An individual who is UK resident but not domiciled claims the remittance basis for a tax year. Which of the following best describes the consequence for their personal allowance?

  1. The personal allowance is doubled
  2. The personal allowance is always available in full
  3. The personal allowance is replaced by a remittance basis charge
  4. The personal allowance is not available if they are UK resident and the remittance basis is claimed, unless the claim is for a year in which remittance basis does not apply Correct answer.

Explanation

A UK resident individual who claims the remittance basis loses entitlement to the personal allowance and annual exempt amount for that year, unless they are not UK domiciled and the remittance basis applies without a claim, or the year is one in which the remittance basis does not apply. The remittance basis charge is separate and does not replace the allowance.

Question 50Principles of Taxation

A trader incurs a loss in one trade and has profits in another trade in the same tax year. Which of the following best describes the relief available for the loss?

  1. The loss is lost entirely and cannot be relieved
  2. The loss can be set against the trader's total income of the same year, subject to conditions Correct answer.
  3. The loss can only be carried forward against future profits of the same trade
  4. The loss is automatically set against the other trade's profits

Explanation

Where a trader carries on more than one trade, a loss in one trade can be set against profits of the other trade in the same year, and may also be set against total income subject to the relevant conditions. Carry-forward is an alternative, not the only route.