R03 Cheat Sheet 2025/2026 — Personal Taxation

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LO1Understand the UK tax system — individuals and trusts15 standard Qs — largest section

Income Tax — key figures 2025/2026

£12,570

Personal Allowance (PA)

£37,700

Basic rate band (20%)

£125,140

Additional rate threshold (45%)

£100,000

PA taper starts

£1,000

PSA — basic-rate taxpayer

£500

PSA — higher-rate taxpayer

£0

PSA — additional-rate taxpayer

£500

Dividend allowance (all taxpayers)

£5,000

Starting rate for savings (0%)

£1,260

Marriage Allowance

£3,130

Blind person's allowance

£7,500

Rent-a-room relief

Income Tax rates 2025/2026

Band	Taxable income	Non-savings & savings	Dividend income
Basic	£0–£37,700	20%	8.75%
Higher	£37,701–£125,140	40%	33.75%
Additional	Over £125,140	45%	39.35%

Income stacking order (critical): Non-savings income first → savings income → dividend income → bond gains (treated as top of savings). This determines which rates and allowances apply to each type.

Starting rate for savings (0%): Applies to first £5,000 of savings income ONLY if non-savings taxable income is below £5,000 (i.e. total income less than £17,570). If non-savings taxable income fills or exceeds £5,000, the starting rate is unavailable.

Personal allowance trap: Between £100,000 and £125,140, every £2 of extra income loses £1 of PA, creating an effective 60% marginal rate. A pension contribution reducing adjusted net income back below £100,000 restores the full PA — effective relief = 60%.

Trusts — Income Tax rates 2025/2026

Trust type	Non-dividend income	Dividend income	£500 exemption?
Discretionary / accumulation	45%	39.35%	Yes — but ONLY if income ≤ £500. If income > £500, the FULL amount is taxable.
Interest in possession (IIP)	20%	8.75%	No exemption. PSA and dividend allowance not available to trustees.
Bare trust	Taxed on the beneficiary at their own rates (trustees are transparent)

Discretionary trust exemption trap: If income exceeds £500, the FULL amount is taxed at 45%/39.35%. The £500 is a threshold, not an allowance.

Capital Gains Tax 2025/2026

£3,000

Individual annual exemption

£1,500

Trust annual exemption

18%

Basic rate (non-residential)

24%

Higher/additional rate — ALL assets

14%

BADR from Apr 2025

£1,000,000

BADR lifetime limit

CGT-exempt assets

UK gilts
VCT shares (new issue)
ISA holdings
Qualifying corporate bonds (QCBs)
Main residence (full PRR)
Personal use chattels ≤ £6,000

CGT disposal rules

Transfer to spouse = no gain/no loss
Gift to anyone else = disposal at market value
30-day rule: shares sold and rebuilt within 30 days matched to repurchase
Annual exemption: use it or lose it

Capital losses

Current year losses must be offset against gains
Excess losses carried forward indefinitely
Brought-forward losses only used to reduce net gains to the AE level (not below)

Inheritance Tax 2025/2026

£325,000

Nil Rate Band (NRB)

£175,000

Residence NRB (RNRB)

40%

Death rate

36%

Reduced rate (10%+ to charity)

20%

Lifetime rate (CLTs to trusts)

£3,000

Annual exemption per donor

£250

Small gifts per donee

7 yrs

PET survival period

PETs vs CLTs

Potentially Exempt Transfer (PET)

Direct gift to an individual
No immediate IHT charge
Fully exempt if donor survives 7 years
Gifts to bare trusts treated as PETs

Chargeable Lifetime Transfer (CLT)

Gift to a discretionary trust
Immediate IHT at 20% on amount above NRB
Also chargeable on death within 7 years
Disabled person's trusts treated as PETs

IHT taper relief (gifts within 7 years of death)

Years before death	0–3	3–4	4–5	5–6	6–7
% of full IHT charge payable	100%	80%	60%	40%	20%

Taper relief only reduces the tax charge — not the value of the gift for NRB purposes.

RNRB: £175,000 in 2025/26. Available when a qualifying residential property is left to a lineal descendant. Tapers at £1 for every £2 of estate above £2,000,000.

LO2Analyse the taxation of investments — individuals and trusts8 standard + 7 multiple response Qs

Direct investments — taxation summary

Investment	Income tax	CGT on disposal	Key point
UK gilts	Interest = savings income	Exempt	CGT-free but income is taxable. No stamp duty/SDRT.
UK quoted shares	Dividends — dividend allowance applies	24% (HR), 18% (BR)	Stamp duty 0.5% on purchase.
AIM shares	Dividends	CGT + may qualify for BADR	No stamp duty/SDRT. 100% IHT Business Relief after 2 years.
Qualifying corporate bonds (QCBs)	Interest = savings income	Exempt	CGT-exempt. Sterling-denominated company debt.
UK rental property	Property income. Mortgage interest: basic rate deduction only (20%).	24% (HR/AR); 18% (BR)	All properties pooled.

Life assurance bonds — Income Tax treatment

Feature	Onshore bond	Offshore bond
Tax within fund	Life fund pays ~20% IT internally (basic rate credit)	Generally low/nil tax within fund (no basic rate credit)
Tax on gain — higher rate	20% additional (40%−20% credit)	40% (no credit)
Assignment as gift	IS a chargeable event	NOT a chargeable event
Top slicing relief	Available — divides gain by complete policy years	Available — same method
5% rule	Up to 5% of original investment per year. Tax deferred to surrender.	Same rule

Top slicing worked example: Policy held 5 years, total gain £20,000. Top-sliced gain = £20,000 ÷ 5 = £4,000. If higher rate: onshore tax = £4,000 × (40%−20%) × 5 = £4,000. Offshore: £4,000 × 40% × 5 = £8,000.

EIS, SEIS and VCT — tax reliefs

Scheme	IT relief	CGT on disposal	CGT deferral	Min holding
EIS	30% (max £1m)	Exempt after 3 years	Yes — any gain deferred	3 years
SEIS	50% (max £200,000)	Exempt after 3 years	50% of gain reinvested	3 years
VCT	30% (max £200,000)	Always exempt	No	5 yrs for IT relief

VCT vs EIS CGT deferral: Only EIS (and SEIS) allow CGT deferral. VCTs do NOT provide CGT deferral. VCT dividends are tax-free; EIS dividends are taxable.

REITs — Real Estate Investment Trusts

Property Income Distributions (PIDs)

Paid gross
Taxed as property income (not dividends)
Subject to IT at non-savings rates (20%/40%/45%)
PSA does NOT apply; dividend allowance does NOT apply

Non-property distributions

Treated as dividend income
Dividend allowance applies
REIT shares can be held in a stocks & shares ISA

LO3Analyse the role and relevance of tax in financial affairs6 standard + 4 multiple response Qs

IHT planning strategies

PETs — most efficient IHT planning

Direct gifts to individuals = PETs
No immediate charge; fully exempt after 7 years
Gifts with reservation of benefit (GWR) trap: if donor retains benefit, asset stays in estate

Trusts for IHT planning

Discretionary trust = CLT — 20% on excess above NRB
Disabled person's trust = PET treatment
Bare trust = PET treatment
Discounted gift trust: reduced value in estate

Gift with reservation of benefit

If donor gives asset but retains benefit (e.g. lives in house rent-free), asset remains in estate
To escape GWR: pay full market rent

Business Relief and Agricultural Property Relief

Relief	Rate	Assets qualifying	Min hold
Business Relief — 100%	100%	Unquoted/AIM trading company shares; sole trader/partnership business	2 years
Business Relief — 50%	50%	Quoted controlling shareholding; land/buildings/machinery used in business	2 years
APR — 100%	100%	Owner-occupied farmland; farm building; farmhouse	Owner-occupied 2 years; let 7 years

Transferable NRB and RNRB

Transferable NRB: On first death, any unused NRB is transferred as a percentage to the surviving spouse/civil partner. Maximum combined NRB = £650,000. RNRB can also be transferred — maximum combined RNRB = £350,000.

LO4Apply personal taxation knowledge to investment advice10 standard Qs — calculations & recommendations

Income Tax calculation — step-by-step

1. Total income→ 2. Less deductions→ 3. Net income→ 4. Less PA (£12,570)→ 5. Taxable income→ 6. Extend bands for pension/gift aid→ 7. Apply rates: non-savings → savings → dividends → bond gains

Worked examples

Maud: pension + savings income

Pension income £15,000; savings income £6,000. PA £12,570.

Taxable pension = £15,000 − £12,570 = £2,430 at 20% = £486
Starting rate for savings: £5,000 − £2,430 = £2,570 at 0%
PSA (basic-rate taxpayer) = £1,000 at 0%
Remaining savings: £2,430 at 20% = £486
Total IT = £972

IHT: Bill (PET + RNRB)

PET £100,000 made 4.5 years before death. Estate £500,000 (home £250,000 to son).

NRB remaining = £325,000 − £100,000 = £225,000
RNRB = £175,000
Total threshold = £400,000
Taxable estate = £100,000 × 40% = £40,000

Tax-efficient investment recommendations

Client scenario	Most tax-efficient approach	Why
Higher-rate taxpayer, equity income, flexible access	Stocks and shares ISA	Dividends at 33.75% outside ISA; tax-free inside.
Additional-rate taxpayer, planning to retire at lower rate	Offshore bond with 5% withdrawals	Gross roll-up; on retirement at lower rate, top slicing reduces effective rate.
Higher earner (£100k–£125,140 adjusted income)	Pension contributions or gift aid	Reduces adjusted net income; restores PA; effective 60% relief.
Estate planning — IHT	PETs directly to children; survive 7 years; pension funds (outside estate)	PETs = no immediate charge; pension funds generally outside estate for IHT.

CGT planning — spouse transfer example: Sophie (higher rate) transfers shares to Stanley (earnings £6,000 — below PA). Transfer = no-gain/no-loss. Stanley disposes. Stanley's CGT: £25,400 − £3,000 AE = £22,400 × 18% = £4,032. If Sophie had disposed: £22,400 × 24% = £5,376. Saving = £1,344.

FIGURESKey figures & tax tables 2025/2026Provided in exam

Income Tax

£12,570

Personal Allowance

£37,700

Basic rate band (20%)

£125,140

Additional rate threshold (45%)

£100,000

PA taper starts

£1,000

PSA — basic rate

£500

PSA — higher rate

£5,000

Starting rate band for savings

£500

Dividend allowance (all)

CGT & IHT 2025/2026

Tax	Rate / Amount
CGT — basic rate (non-residential)	18%
CGT — higher/additional rate (all assets)	24%
BADR rate from April 2025	14% (lifetime limit £1,000,000)
CGT annual exemption — individuals	£3,000
CGT annual exemption — trusts	£1,500
IHT nil rate band	£325,000
IHT residence nil rate band	£175,000 (tapers above £2m)
IHT death rate	40% (36% if 10%+ to charity)
IHT lifetime rate (CLT)	20%
IHT annual exemption per donor	£3,000 (carry forward 1 year)

ISA allowances 2025/2026

£20,000

Adult ISA (all types combined)

£9,000

Junior ISA per child

£4,000

Lifetime ISA (within £20,000 limit)

25%

LISA government bonus (max £1,000/yr)

TRAPSCommon R03 exam traps — don't fall for these

Common trap	Correct answer
Starting rate for savings — when does it apply?	Only if non-savings taxable income is below £5,000.
PSA — does it apply to additional-rate taxpayers?	No PSA for additional-rate taxpayers. £1,000 basic; £500 higher; £0 additional.
Discretionary trust — is the £500 a standard deduction?	No — if trust income exceeds £500, the FULL amount is taxed at 45%/39.35%.
Annual CGT exemption — can it be carried forward?	No — use it or lose it each tax year.
Transfer of assets between spouses — CGT disposal?	No — no-gain/no-loss transfer. CGT arises only when the recipient later disposes.
Onshore bond assigned as gift — chargeable event?	Yes — gain assessed on original holder.
Offshore bond assigned as gift — chargeable event?	No — key difference from onshore.
5% rule — based on current or original value?	Original investment — not current value.
VCT — does it provide CGT deferral?	No — only EIS and SEIS provide CGT deferral.
Fixed interest unit trust / OEIC — what type of income?	Interest distributions — taxed as savings income. Dividend allowance does NOT apply.
REIT PID — what type of income?	Property income — not dividends. PSA does not apply.
IHT taper — does it reduce the value of the gift?	No — taper reduces the tax charge, not the value of the gift.
Normal expenditure out of income — upper limit?	No upper limit — unlimited if conditions met.
CGT on residential property — rate for higher-rate taxpayer?	24% in 2025/26. The old 28% rate no longer applies.
Marriage Allowance — can higher-rate taxpayer be recipient?	No — the receiving spouse must be a basic-rate taxpayer.
Residential property mortgage interest — fully deductible?	No — restricted to a basic rate (20%) tax deduction from the tax liability.

Free R03 Cheat Sheet

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Personal Taxation — All 4 Learning Outcomes

Test yourself before you revise

CGT-exempt assets

CGT disposal rules

Capital losses

Potentially Exempt Transfer (PET)

Chargeable Lifetime Transfer (CLT)

Property Income Distributions (PIDs)

Non-property distributions

PETs — most efficient IHT planning

Trusts for IHT planning

Gift with reservation of benefit

Maud: pension + savings income

IHT: Bill (PET + RNRB)

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