ACCA Advanced Taxation (ATX) Practice Exam

Capital Gains Tax applies when there is a gain from the disposal of which of the following?

1. Property only

2. Personal belongings only

3. All investments and assets

4. Business income only

The correct answer is: All investments and assets

Capital Gains Tax (CGT) is applicable on the capital gains realized from the disposal of assets. The correct choice is that it applies to all investments and assets, which encompasses a broad range of potential disposals. When an individual disposes of an asset that has appreciated in value, they may be liable for CGT on the profit made from that transaction. This includes various categories of assets such as real property (like land and buildings), financial assets (such as shares and bonds), and even personal possessions that exceed a certain value threshold. The rationale behind this is that CGT is designed to tax the increase in wealth that occurs when capital assets are sold for more than their original purchase price. This taxation is not limited to just one category of asset or another but applies universally across different types of investments and assets, reflecting the broader economic principle that profits derived from the sale of any valuable property should be subject to tax. While specific regulations might vary by jurisdiction concerning exemptions or thresholds (for example, certain personal belongings might be exempt up to a specific value, or the main residence might have relief), the fundamental principle of CGT encompasses a wide range of disposals, which justifies why all investments and assets fall under its scope.