RO3 Onshore Bond Question
Amel23
Member
in CPD & Exams
Can someone help with the below?
Russell, when aged 60, invested £20,000 in an onshore life assurance bond from which no
withdrawals have been made. It was fully surrendered just over five years later in the tax year
2023/2024 for £27,500. Russell’s other taxable income for the tax year, after allowances and
deductions, is £50,270, which includes £1,000 of interest. What amount of Income Tax, if any, will
Russell have to pay on surrender?
A. None.
B. £250
C. £300
D. £1,500
Comments
As it says "after allowances and deductions", i would presume this means after the personal allowance and maybe the personal savings allowance has been considered, meaning he is over the higher rate tax threshold. Therefore whole gain of £7,500 is taxed at 20% meaning £1,500 would be the answer.
Either they are luring you into the trap of a top slicing calculation, or my understanding is wrong and there is in fact a top slicing calculation to be done!
Hi,
The answer is £1,500 and there is no top slicing calculation needed.
If "Russell’s other taxable income for the tax year, after allowances and deductions, is £50,270, which includes £1,000 of interest." is taken as written, we can conclude that Russell has:
He therefore has taxable non-savings income of £49,270 and taxable savings interest of £1,000. This means he is very much a higher rate taxpayer before the bond gain and will pay tax of 20% of the bond gain on surrender i.e. £1,500. @Wildparaplanner I don't think we can use "maybe" here, the wording is absolute and the PSA is an allowance we're told has been used. I think your understanding is correct.
Thank you both, this makes sense
I think the wording in the R03 questions is confusing me!
Is that a CII specimen question or a third party training provider?
@benjaminfabi sorry just noticed this - it was from one of the CII examination guides