ACCA Advanced Taxation (ATX) Practice Exam

Do the related property rules apply to both inheritance tax (IHT) and capital gains tax (CGT)?

1. True, they apply to both

2. False, they only apply to IHT

3. Only for properties above a certain value

4. Only for corporate entities

The correct answer is: False, they only apply to IHT

The statement that the related property rules only apply to inheritance tax (IHT) is accurate as IHT governs the transfer of wealth through inheritance, where the valuation of related property can affect the tax liability. Related property rules are particularly relevant in IHT situations because they determine how properties owned by the deceased are valued and what exemptions may apply, linking assets that may be considered together for tax purposes. In contrast, while capital gains tax (CGT) has its own rules regarding the disposal of assets and the calculation of gains or losses, it does not incorporate related property rules in the same manner as IHT. CGT assesses gains based on the individual asset's value rather than tying values together in a similar way that IHT does for related properties. Therefore, considering the nature of the rules and their application, the assertion that they only apply to inheritance tax is supported by the way these two taxes operate within the relevant legislation. This distinction clarifies the roles of each tax and underlines why the related property rules are specifically pertinent to inheritance tax rather than capital gains tax.