The pass rates for the CII Diploma R03 Personal Taxation exam have been the lowest of all the R0 exams over the past few years, with the most recent results from 2017 showing a further dip still.
So why is it so tricky to pass? One criticism from past candidates is that 60 minutes is not long enough to answer 50 questions, particularly when 15 are multiple-response.
Work on your speed
The time pressure is enormous and should not be underestimated, so work on your speed by attempting mock exams in that crucial hour-long timeframe.
Another area to look at is the type of questions being asked. You can be pretty sure there will always be calculations on investment bond taxation (offshore and onshore), income tax (which might include tapering the personal allowance), the use of the dividend allowance and personal savings allowance, inheritance tax (including the 36 per cent rate) and capital gains tax.
The exam is also made up of theory questions and you are likely to see one on venture capital trusts and/or enterprise investment schemes, as well as how much a family can invest into Isas. For this question, you will be given the ages of the children, so watch out for the 16-year-old who can have both a cash Isa and Junior Isa.
Cut through the noise
But while we can be pretty certain these questions will be asked, it is the way they are asked that often trips candidates up.
Sometimes, the wording can be complicated and skill is needed to pick through the information to get to what is actually being tested.
The wording can be complicated and skill is needed to pick through the information and get to what’s being tested
Take this example from the exam guide: “Stanley, a higher rate taxpayer, receives £10,000 annually in dividends from an inherited investment portfolio. He also owns 500 shares in a PLC. If this company declares a dividend of £1.80 per share, what amount will Stanley receive in his bank account?”
There are a couple of points to make here. Firstly, the fact he is a higher rate taxpayer is irrelevant for this question. The fact he has £10,000 dividend income is also irrelevant (we assume it is there to indicate he exceeds the dividend allowance).
All we need to do to answer the question is multiply 500 x £1.80 to determine that £900 is paid into his bank account. It seems too simple but that really is the answer.
Do not forget the 10 per cent tax credit does not apply to dividends any more. One of the four-option answers is £810, which is there to trip up those who might have.
Practise standard calculations
Investment bond questions are also regular features, so let’s look at one of these: “Rob, when aged 60, invested £20,000 in an onshore bond (he has not made any withdrawals). It was surrendered in full just over five years later in 2017/18 for £27,500. His other income for the year, after allowances and deductions, is £33,500, which includes £1,000 of interest. What amount of income tax will Rob have to pay on surrender?”
Notice that Rob’s salary is the same as the basic rate income tax band (his age is irrelevant). We are told he has interest of £1,000 and this is to show that the personal savings allowance is utilised. The gain is £7,500.
Delegates will start thinking about top slicing and whether it is five or six years (as it is a full surrender it will be five). But we do not need to top slice; the basic rate band has been used so the whole gain is taxed at 20 per cent (answer = £1,500).
If a delegate had top sliced by five years and multiplied by 20 per cent (and forgotten to multiply this by the number of years) the answer is £300, which was answer C. If they had top sliced by six, the answer is £250, which was answer B.
It would have been easy to get this question wrong under exam conditions, so you can see how practising is crucial.
So, my tips for passing this difficult exam: study the CII guide, work on your speed with mock papers, work out exactly what is being asked and practise standard calculations.
Follow this advice and you should be able to weed out the superfluous and answer the question correctly.
Catriona Standingford is managing director at Brand Financial Training