ACCA Advanced Taxation (ATX) Practice Exam

What happens to any unused annual exempt amount at the end of the assessment period?

1. It can be carried forward

2. It is lost

3. It is automatically deducted from the next year

4. It can be sold to another taxpayer

The correct answer is: It is lost

At the end of the assessment period, any unused annual exempt amount is lost. The annual exempt amount, which applies to capital gains tax, allows individuals to benefit from a certain threshold of tax-free gains each tax year. If an individual does not utilize the full amount of their exemption in a given tax year, that remaining exemption does not carry over or convert into any sort of asset or future benefit. This concept emphasizes the importance of planning for capital gains and utilizing the exemption each year, as failing to do so results in a loss of that tax relief opportunity. Thus, understanding the nature of the annual exempt amount is essential for effective tax management.