AAT L4 Personal Tax 2 — Questions and Answers
Question 1: A UK taxpayer has total income of £110,000 for 2025/26. By how much is their personal allowance reduced?
- £7,570
- £4,715
- £5,000 (Correct answer)
- £12,570
Correct answer: £5,000
The personal allowance is reduced by £1 for every £2 of income above £100,000. Income above threshold = £110,000 - £100,000 = £10,000. Reduction = £10,000 / 2 = £5,000. Revised personal allowance = £12,570 - £5,000 = £7,570.
Question 2: Class 4 National Insurance Contributions for self-employed individuals are calculated on:
- Total turnover
- Trading profits between the lower and upper profits limits (Correct answer)
- Employment income
- Dividend income
Correct answer: Trading profits between the lower and upper profits limits
Class 4 NICs are payable on trading profits between the lower profits limit (£12,570) and upper profits limit (£50,270) at 6%, plus 2% on profits above the upper limit.
Question 3: A higher rate taxpayer receives UK dividends of £8,000 in 2025/26. The dividend allowance is £500. How much Income Tax is payable on the dividends?
- £2,531.25 (Correct answer)
- £2,700.00
- £2,625.00
- £1,687.50
Correct answer: £2,531.25
Taxable dividends = £8,000 - £500 allowance = £7,500. Higher rate dividend tax = 33.75%. Tax = £7,500 x 33.75% = £2,531.25.
Question 4: Which Capital Gains Tax relief allows deferral of a gain when proceeds are reinvested in qualifying business assets?
- Business Asset Disposal Relief
- Business Asset Rollover Relief (Correct answer)
- Principal Private Residence Relief
- Annual Exempt Amount
Correct answer: Business Asset Rollover Relief
Business Asset Rollover Relief allows a trader to defer a capital gain when proceeds from selling a qualifying business asset are reinvested in a new qualifying asset within 1 year before to 3 years after disposal.
Question 5: A taxpayer makes a gift of £50,000 on 1 May 2019 and dies on 1 August 2025. The gift is a potentially exempt transfer. What taper relief percentage applies?
- 100% — full rate, no taper relief
- 60% of the full rate
- 80% of the full rate
- 20% of the full rate (Correct answer)
Correct answer: 20% of the full rate
The period between gift and death is 6 years and 3 months (6-7 years band). Taper relief for 6-7 years before death reduces the IHT to 20% of the full rate. The bands are: 0-3 years (100%), 3-4 years (80%), 4-5 years (60%), 5-6 years (40%), 6-7 years (20%).
Question 6: A taxpayer lets a furnished room in their main home and receives rent of £6,500 in 2025/26. Under the Rent a Room scheme, what is the taxable property income?
- £6,500
- £0 (Correct answer)
- £1,000
- £3,250
Correct answer: £0
The Rent a Room scheme exempts the first £7,500 of gross rental income from letting a furnished room in the taxpayer's main home. Since £6,500 is below £7,500, the entire amount is exempt.
AAT L4 Personal Tax 2
A UK taxpayer has total income of £110,000 for 2025/26.
By how much is their personal allowance reduced?