ACCA Advanced Taxation (ATX) Practice Exam

If a donee of a gift holdover relief emigrates, what occurs on the day before emigration?

1. Tax is no longer owed

2. Relief becomes chargeable

3. The gift is returned

4. New tax residence rules take effect

The correct answer is: Relief becomes chargeable

When a donee of a gift who has claimed holdover relief emigrates, the holdover relief becomes chargeable the day before their emigration. This means that any potential capital gains tax liability that was deferred due to holdover relief is triggered, and thus becomes payable. Holdover relief allows a donor to defer capital gains tax liabilities on gifts of certain assets by transferring the gain to the donee. However, if the donee decides to leave the country, it is important to note that the relief is no longer available, and the associated tax becomes chargeable. This is particularly relevant for tax planning and understanding residency rules, as individuals may be subject to different tax implications based on their residency status after emigration. The other options do not align with tax law related to holdover relief on emigration. For instance, tax does not simply disappear, and the gift remains intact, meaning it is not 'returned.' Additionally, while new tax residence rules may affect how tax is calculated based on residency status, they do not directly impact the holdover relief mechanism in the context of emigration.