ACCA Advanced Taxation (ATX) Practice Exam

What does a fall in value relief exception state regarding plant and machinery?

1. It only applies to wasting assets

2. It does not apply as they are expected to fall in value

3. It applies to pecuniary assets only

4. It always results in a tax relief

The correct answer is: It does not apply as they are expected to fall in value

The fall in value relief exception refers to the treatment of plant and machinery in taxation, particularly regarding the allowable capital allowances for these assets. When it comes to plant and machinery, the fall in value relief does not apply because these assets are typically expected to depreciate over time. Tax law recognizes that plant and machinery will generally lose value as they age and are used, hence, the provision does not provide additional relief for this expected depreciation. The basis of this exception is the understanding that businesses can claim capital allowances based on the cost of an asset rather than its fluctuating market value. Since such assets are inherently expected to decrease in value through wear and tear, there is no additional tax relief provided under the fall in value relief exception. This perspective aligns with the nature of capital allowances, where tax relief is generally given based on the original purchase cost of the asset rather than its current market value or declines in value that may occur. Therefore, the specifics of the exception clarify that it is not applicable in the case of plant and machinery, as they inherently follow a depreciation trajectory that is already accounted for through the usual capital allowance claims.