ACCA Advanced Taxation (ATX) Practice Exam

If an individual has made a gift, how is the value of shares before the gift compared to after the gift used?

1. It indicates the overall asset value

2. It is used to calculate capital gains tax

3. It calculates the transfer of value for IHT

4. It determines eligibility for tax relief

The correct answer is: It calculates the transfer of value for IHT

When an individual makes a gift of shares, the value of those shares before and after the gift is particularly relevant for calculating the transfer of value for Inheritance Tax (IHT) purposes. The key factor in IHT is the 'transfer of value' that occurs when an asset is gifted, which is assessed to determine whether it affects the donor's estate's total value at the time of their death. The value of the shares prior to the gift is critical in establishing the market value at the time of the transfer, which helps to determine how much value has been transferred away from the donor. Gift exemptions or annual allowances may also apply depending on the value transferred, but fundamentally, it is the difference in value that highlights whether any tax implications arise. In contrast, although capital gains tax may apply when shares are sold or disposed of, it is not specifically relevant to the act of gifting shares for the purposes of assessing IHT. Furthermore, eligibility for tax relief does not directly arise from the valuation comparison made at the time of the gift, nor does the overall asset value summarily summarize the financial position of the individual in relation to IHT. Thus, understanding the significance of the value of shares before and after a gift enables accurate valuation and compliance