ACCA Advanced Taxation (ATX) Practice Exam

Does fall in value relief apply to wasting chattels, non-wasting chattels, and plant and machinery?

1. True, applies to all

2. False, does not apply to all

3. True, applies only to wasting chattels

4. True, applies only to non-wasting chattels

The correct answer is: False, does not apply to all

Fall in value relief is a tax relief that applies to certain types of assets when they are disposed of at a loss. The application of this relief is important for understanding how different types of assets are treated for tax purposes. Wasting chattels, such as a car, can benefit from fall in value relief because these assets are expected to have a finite lifespan, meaning that their value decreases over time as they are used. However, non-wasting chattels, such as art or antiques, do not typically qualify for this relief because they might appreciate in value instead of depreciating. Furthermore, plant and machinery are generally categorized as non-wasting assets under tax law, and they are subject to capital allowances rather than fall in value relief. They are considered to have a longer life and can be depreciated over time through capital allowances, which allows a business to recover the cost of the asset over its useful life. Thus, fall in value relief does not apply uniformly across all asset types, specifically excluding non-wasting chattels and plant and machinery, making it accurate that fall in value relief does not apply to all. This understanding is crucial for effectively navigating tax implications related to asset disposals in advanced taxation contexts.