ACCA Advanced Taxation (ATX) Practice Exam

How long after the disposal year does the window for claiming reinvestment relief open?

1. 1 year

2. 2 years

3. 3 years

4. 4 years

The correct answer is: 3 years

Reinvestment relief allows individuals or businesses to defer capital gains tax on the disposal of an asset if the proceeds are reinvested in qualifying new assets. The window for claiming this relief is established to provide taxpayers with adequate time to reinvest their gains in a manner that qualifies under the tax regulations. The correct answer is based on the legislation governing reinvestment relief, which specifies that taxpayers have three years from the end of the year in which the disposal occurs to claim the relief. This timeframe is generous, considering the necessary processes that individuals or businesses may need to undertake when identifying new qualifying investments. Understanding this timeframe is crucial for effective tax planning, as it allows taxpayers to manage their cash flows and investment decisions without the immediate pressure of tax implications. The three-year period reflects a balance between allowing sufficient time for reinvestment while also ensuring that tax authorities can maintain oversight over claims and manage tax revenues. In contrast, the other options reflect shorter timeframes that do not align with the specified regulations for reinvestment relief claims, highlighting why it is important to be well-acquainted with the specific rules and timelines in the tax law.