AAT L4 Personal Tax 2

Question 1

A UK taxpayer has total income of £110,000 for 2025/26. By how much is their personal allowance reduced?

Accepted Answer

£5,000

Answer

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:

Accepted Answer

Trading profits between the lower and upper profits limits

Answer

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?

Accepted Answer

£2,531.25

Answer

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?

Accepted Answer

Business Asset Rollover Relief

Answer

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?

Accepted Answer

20% of the full rate

Answer

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%).

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Personal Tax 2