ACCA Advanced Taxation (ATX) Practice Exam

What does SSE imply regarding chargeable gains and allowable losses?

1. Both chargeable gains and allowable losses are applicable

2. No chargeable gains, but allowable losses exist

3. No chargeable gains and no allowable losses

4. Only chargeable gains are exempted

The correct answer is: No chargeable gains and no allowable losses

SSE, or Substantial Shareholdings Exemption, is a relief mechanism in taxation that applies specifically to the sale of shares. When a transaction qualifies for SSE, it means that the shares were held for a significant period, typically at least 12 months, and allows for certain benefits concerning tax on the gains realized from the disposal of those shares. In the context of chargeable gains and allowable losses, choosing the option stating that there are no chargeable gains and no allowable losses reflects a correct understanding of SSE's implications. When SSE applies, any gains made from the sale of qualifying shares are exempt from capital gains tax. Consequently, since no tax is due on the gains, they are not chargeable. Additionally, because the exemption covers the gains entirely, it also precludes the possibility of recognizing any allowable losses that could arise from this specific transaction. Understanding this mechanism is important for individuals and businesses engaged in considerable share transactions, as it directly influences their tax liability and strategic planning regarding asset disposals.