Free CISI Intro Practice Questions: Taxation, Investment Wrappers and Trusts

Use this focused CISI Intro page as a short practice test for Taxation, Investment Wrappers and Trusts. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

Topic snapshot

Sample questions

These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Taxation, Investment Wrappers and Trusts

A grandmother wants to set aside a lump sum for two young grandchildren. She wants adults to decide how and when the money is used, rather than the children controlling the investment account when they become adults. Her solicitor has drafted a discretionary trust naming the grandmother as settlor and her two adult children as trustees. What is the best next step before any fund is purchased?

• A. The trustees should accept their role, check the trust deed’s investment powers, and open the investment account as trustees.
• B. The grandchildren should open Junior ISAs and receive the lump sum directly.
• C. The fund manager should decide when each grandchild receives income or capital from the investment.
• D. The grandmother should keep the investment account in her own name and note the grandchildren as intended recipients.

Best answer: A

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: A trust separates legal ownership from beneficial interest. The settlor creates the trust and transfers assets into it. The trustees then become responsible for holding and managing those assets under the trust deed for the beneficiaries. In this scenario, the grandmother wants adult control over how and when the money is used, so the process should move through the trustees rather than direct accounts for the grandchildren. The investment provider would normally deal with the trustees as the account holders, while the trust deed sets out their powers and duties.

• Junior ISAs may be suitable for some child savings, but they give the child access at adulthood and do not match the stated wish for trustee control.
• Keeping the account in the grandmother’s sole name would not complete the trust arrangement or transfer control to trustees.
• A fund manager manages the investments, but does not decide distributions to beneficiaries unless properly instructed by those with authority.

In a trust arrangement, the trustees hold and manage the assets according to the trust deed for the beneficiaries.

Question 2

Topic: Taxation, Investment Wrappers and Trusts

Lewis is self-employed and wants to save for retirement. His income varies from month to month, so he needs contributions he can increase, reduce, or stop, and he wants a simple pension with capped charges rather than a very wide investment choice. Which pension description best matches his needs?

• A. A defined benefit scheme paying income linked to salary and service
• B. A workplace defined contribution scheme funded by employer and employee
• C. A SIPP with broad investment choice and member-led decisions
• D. A stakeholder pension with flexible contributions and capped charges

Best answer: D

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: The key skill is matching the pension type to the saver’s circumstances. A stakeholder pension is a personal pension designed to be simple, with flexible contributions and capped charges, so it suits someone whose income is irregular and who wants an easy way to build retirement savings. That makes it a good fit for a self-employed person who may need to vary contributions over time.

A SIPP is also a personal pension, but it is usually chosen by someone who wants a much wider range of investments and is comfortable making more investment decisions. Defined benefit and workplace defined contribution pensions are normally linked to an employer, which does not fit this scenario. The decisive clues are self-employment, flexible contributions, and a preference for simplicity.

• Wide choice: A SIPP can be flexible, but it is mainly aimed at investors who want extensive self-directed investment choice.
• Employer promise: A defined benefit scheme usually depends on an employer and pays benefits based on salary and service.
• Workplace link: A workplace defined contribution pension is normally arranged through employment and commonly includes employer contributions.

This fits a stakeholder pension because it is designed to be simple, allows flexible contributions, and has capped charges.

Question 3

Topic: Taxation, Investment Wrappers and Trusts

A client is UK resident for the tax year but non-UK domiciled. Ignore allowances, exemptions and special regimes. Interest received is:

• UK bank interest: £1,200
• Overseas bond interest: £1,800

If the illustrative income tax rate is 20%, which calculation is consistent with the high-level UK tax roles of residence and domicile?

• A. £0, because a non-UK domiciled person is outside UK income tax
• B. £240, using only the UK bank interest because the client is non-UK domiciled
• C. £600, using both UK and overseas interest because the client is UK resident
• D. £360, using only the overseas bond interest because domicile decides income tax

Best answer: C

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: For UK tax basics, residence and domicile have different roles. Residence is the main status used to determine whether income and gains are within the UK tax net, including overseas investment income in a simplified calculation. Domicile is more closely associated with inheritance tax and a person’s long-term permanent home. In this case the client is UK resident, so both the UK bank interest and overseas bond interest are included before applying the 20% illustrative rate. The calculation is £3,000 × 20% = £600.

• Using only the UK bank interest wrongly treats non-UK domicile as excluding overseas income from this simplified income tax calculation.
• Using only the overseas bond interest reverses the role of residence and domicile.
• Treating non-UK domicile as removing all UK income tax exposure is too broad and ignores UK residence.

Residence is the relevant high-level link for income tax on worldwide investment income here, so (£1,200 + £1,800) × 20% = £600.

Question 4

Topic: Taxation, Investment Wrappers and Trusts

A trust holds 10,000 ordinary shares. The shares pay a dividend of 30p per share this year. The trust deed states that all income must be paid to Priya during her lifetime, the trustees cannot choose another income beneficiary, and the remaining capital passes to a registered charity when Priya dies.

Which statement correctly identifies the trust arrangement and the income Priya is entitled to receive this year?

• A. Bare trust; £3,000 must be paid to Priya.
• B. Charitable trust; £30,000 must be applied for charitable purposes.
• C. Interest-in-possession trust; £3,000 must be paid to Priya.
• D. Discretionary trust; £3,000 may be allocated by the trustees among beneficiaries.

Best answer: C

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: An interest-in-possession trust gives a beneficiary a present legal right to the trust income, even though another person or body may receive the capital later. Here, Priya must receive all the income during her lifetime, while the capital is reserved for the charity after her death. The dividend income is 10,000 × 30p = 300,000p, which is £3,000. A bare trust would normally give the beneficiary an absolute entitlement to both income and capital. A discretionary trust would allow trustees to decide whether, when, and how much to distribute to beneficiaries. A charitable trust is set up for charitable purposes rather than giving a private person a lifetime right to income.

• Bare trust fails because Priya is not absolutely entitled to the capital.
• Discretionary trust fails because the trustees have no discretion over who receives the income.
• Charitable trust fails because Priya has a private lifetime income entitlement, and £30,000 treats 30p as £30.

Priya has a fixed right to the trust income, and 10,000 shares at 30p each produce £3,000 of income.

Question 5

Topic: Taxation, Investment Wrappers and Trusts

A UK investor wants to invest a lump sum in an authorised OEIC fund. The amount is within their unused ISA subscription allowance, they are eligible to subscribe, and the fund can be held in a Stocks and Shares ISA. They want income and gains to be tax-sheltered but may need access before retirement. In the account-opening workflow, what is the best next step?

• A. Buy the OEIC in a general investment account first and apply ISA treatment when it is sold.
• B. Set up the Stocks and Shares ISA wrapper first, then place the OEIC purchase within it.
• C. Make the payment into a SIPP because pensions normally provide tax relief and tax-sheltered growth.
• D. Place the OEIC into a discretionary trust so trustees can decide future access and beneficiaries.

Best answer: B

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: The wrapper should be dealt with before the investment is placed. If the investor is eligible, has unused ISA allowance, and the chosen fund can be held in a Stocks and Shares ISA, the investment can be bought inside the ISA from the start. That gives the intended tax shelter for income and gains while keeping access more flexible than a pension. A general investment account may be simple and accessible, but it does not provide ISA tax treatment. A SIPP may be tax-efficient for retirement planning, but it is not suitable where access may be needed before retirement. A discretionary trust is mainly a beneficiary-planning and control arrangement, not the natural next step for an investor seeking their own accessible tax wrapper.

• A general investment account does not shelter income and gains in the same way as an ISA.
• A SIPP focuses on pension planning and restricts access until pension rules allow it.
• A discretionary trust is more relevant to control and beneficiary planning than to this investor’s own accessible tax wrapper.

The ISA wrapper matches the investor’s tax-sheltering aim while preserving access, and the eligibility facts have been confirmed.

Question 6

Topic: Taxation, Investment Wrappers and Trusts

An investment wrapper has the following main UK tax feature for an individual investor: income and capital gains arising within it are exempt from further UK income tax and capital gains tax. Which wrapper matches this feature?

• A. General investment account
• B. Stocks and Shares ISA
• C. Offshore investment bond
• D. SIPP

Best answer: B

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: The key concept is the difference between a tax wrapper and a taxable account. A Stocks and Shares ISA is a UK wrapper that shelters investment returns so that dividends, interest, and capital gains within the ISA are not subject to further UK income tax or capital gains tax for the investor.

A SIPP mainly offers tax relief on contributions, but pension benefits have their own withdrawal tax treatment, so it is not best matched by the feature given. An offshore investment bond is more about tax deferral than full exemption, and a general investment account provides no wrapper-based shelter from income tax or CGT.

The best match is the wrapper whose defining benefit is tax-free income and gains.

• Pension confusion: A SIPP is tax-advantaged, but its headline feature is pension tax relief and pension rules, not simple exemption from further income tax and CGT in the way described.
• Deferral vs exemption: An offshore investment bond can defer tax, but that is different from saying income and gains are exempt.
• No wrapper benefit: A general investment account is just a standard taxable holding, so income and gains may be assessable to tax.

A Stocks and Shares ISA is designed to shelter investment income and capital gains from further UK income tax and CGT.

Question 7

Topic: Taxation, Investment Wrappers and Trusts

Which statement best describes the broad tax role of residency and domicile for a UK individual investor?

• A. Residency affects UK tax scope; domicile can affect foreign income treatment.
• B. Domicile alone decides tax on all investment income.
• C. Residency and domicile have the same meaning for tax.
• D. Neither matters if investments are held with a UK broker.

Best answer: A

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: In UK tax at a high level, residency and domicile do not do the same job. Tax residency is the main starting point for deciding the overall scope of a person’s UK tax exposure, including whether overseas income and gains may come into view. Domicile is a separate concept and can affect how foreign income and gains are treated.

This means an investor cannot assume that domicile replaces residency, or that using a UK platform or broker removes the relevance of either concept. The broad pattern is: residency sets much of the UK tax framework, and domicile may modify the treatment of non-UK income and gains.

The main takeaway is that both concepts can matter, but residency is usually the first tax question.

• Domicile only: Domicile is relevant, but it does not by itself determine all tax treatment on investment income.
• Same concept: Residency and domicile are distinct legal and tax concepts, so they are not interchangeable.
• UK broker misconception: Where investments are held does not override the investor’s own tax position.

UK tax residency broadly determines the reach of UK taxation, while domicile can influence the treatment of overseas income and gains.

Question 8

Topic: Taxation, Investment Wrappers and Trusts

Amira transfers a portfolio of gilts into a trust for estate-planning purposes. The trust deed appoints Ben to hold and manage the investments, pays the income to Clara during her lifetime, and passes the capital to Daniel after Clara dies. Amira’s will also appoints Eva to administer her estate after death. Which statement best describes the roles?

• A. Amira is the executor, Ben is the life tenant, Clara is the trustee, Daniel is the settlor, and Eva is the remainderman.
• B. Amira is the trustee, Ben is the settlor, Clara is the remainderman, Daniel is the executor, and Eva is the beneficiary.
• C. Amira is the settlor, Ben is the trustee, Clara is the life tenant, Daniel is the remainderman, and Eva is the executor.
• D. Amira is the beneficiary, Ben is the executor, Clara is the settlor, Daniel is the trustee, and Eva is the life tenant.

Best answer: C

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: In a simple trust, the settlor creates the trust and transfers assets into it. The trustee holds legal title and manages the trust assets for those entitled to benefit. A life tenant is a beneficiary entitled to income, or use of the trust property, during their lifetime. A remainderman is entitled to the capital after the life tenant’s interest ends. In an estate context, an executor is the person named in a will to administer the deceased person’s estate; executors are a type of personal representative.

• Treating the person who funds the trust as trustee confuses creating the trust with administering it.
• Treating the life tenant as trustee ignores Clara’s limited right to income during her lifetime.
• Treating the executor as a trust beneficiary confuses estate administration with entitlement under the trust.

Amira creates and funds the trust, Ben administers it, Clara has the lifetime income interest, Daniel receives the remaining capital, and Eva administers the estate under the will.

Question 9

Topic: Taxation, Investment Wrappers and Trusts

An employee is enrolled in a pension arrangement in which contributions are invested in funds within the scheme. The retirement income is not guaranteed and will depend on contributions, investment performance, charges, and the choices made at retirement.

Ignoring tax relief and charges, which description best matches this arrangement?

• A. A workplace defined contribution pension, with £1,500 a year paid in because only the employee contribution counts
• B. A workplace defined contribution pension, with £2,400 a year paid into the employee’s pension pot
• C. A personal annuity, with £900 a year paid in because only the employer contribution determines the retirement income
• D. A workplace defined benefit pension, with £2,400 a year buying a guaranteed pension based on salary and service

Best answer: B

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: A defined contribution pension builds up an individual pot from contributions and investment returns. The eventual retirement income is not guaranteed; it depends on the size of the pot, charges, investment performance, and how the member uses the pot at retirement. Here, both employee and employer contributions are paid into the arrangement. The total contribution rate is 5% + 3% = 8%. Applying that to pensionable salary gives 8% × £30,000 = £2,400 per year. A defined benefit pension is different because it promises benefits using a formula, often linked to salary and service, rather than simply the value of an invested pot.

• Defined benefit is not right because the facts describe an invested pension pot with no guaranteed retirement income.
• Counting only the employee’s 5% misses the employer’s 3% contribution.
• Counting only the employer’s 3% also misreads the contribution schedule and confuses a pension pot with an annuity.

The arrangement is defined contribution because benefits depend on the invested pension pot, and total annual contributions are 8% of £30,000, or £2,400.

Question 10

Topic: Taxation, Investment Wrappers and Trusts

A trainee is reviewing a UK retail client’s tax worksheet. Which conclusion is best supported by the worksheet?

Worksheet extract
- Salary payslip: PAYE income tax and employee National Insurance deducted
- Investment sale: realised gain above the annual exempt amount
- UK share purchase: stamp duty reserve tax charged on broker note
- Estate note: possible inheritance tax exposure on estate transfers
- Family company: profits assessed to corporation tax
- Household receipt: HMRC tax credit payment

• A. Stamp duty reserve tax and the HMRC tax credit are indirect taxes because both appear on transaction or HMRC records; corporation tax is the individual’s tax on the investment sale.
• B. Corporation tax replaces income tax for anyone who owns a company, and inheritance tax applies only to profits retained in that company.
• C. Income tax, employee National Insurance, capital gains tax and inheritance tax are direct taxes affecting the individual or estate; stamp duty reserve tax is an indirect transaction tax; corporation tax applies to company profits; the HMRC tax credit is state support.
• D. Capital gains tax is charged on the UK share purchase, while stamp duty reserve tax is charged on the investment sale; National Insurance is a state benefit payment.

Best answer: C

What this tests: Taxation, Investment Wrappers and Trusts

Explanation: UK tax basics focus on what is being taxed and who is liable. PAYE income tax and employee National Insurance are direct deductions from an individual’s earnings. A gain above the annual exempt amount points to capital gains tax. Estate transfers can bring inheritance tax considerations. Stamp duty reserve tax is linked to the purchase of UK shares, so it is a transaction tax rather than a tax on salary or gains. Corporation tax is charged on company profits, not directly on an individual shareholder’s salary or personal investment disposal. An HMRC tax credit is a form of support or benefit for the household, not a tax liability.

• Treating stamp duty reserve tax as income tax confuses a share purchase transaction tax with tax on earnings or gains.
• Putting corporation tax on the individual shareholder ignores that it is assessed on company profits.
• Calling an HMRC tax credit a tax liability reverses the direction of the payment; it is government support.
• National Insurance in the worksheet is a deduction from earnings, not a state benefit receipt.

The worksheet separates direct taxes on the individual or estate, a transaction tax on buying shares, a company profits tax, and a government support payment.

Continue in the web app

Use Finance Prep for interactive CISI Intro practice with mixed sets, timed mock exams, topic drills, explanations, and progress tracking.

Related focused pages

• Free CISI Intro Practice Exam: Introduction to Investment
• Free CISI Intro Practice Questions: Introduction
• Free CISI Intro Practice Questions: Economic Environment
• Free CISI Intro Practice Questions: Financial Assets and Markets
• Free CISI Intro Practice Questions: Equities
• Free CISI Intro Practice Questions: Bonds
• Free CISI Intro Practice Questions: Derivatives
• Free CISI Intro Practice Questions: Investment Funds
• Free CISI Intro Practice Questions: Financial Services Regulation
• Free CISI Intro Practice Questions: Other Financial Products
• Free CISI Intro Practice Questions: Financial Advice

Practice next step

Use the Finance Prep web app above when you want interactive practice beyond this static page.