ACCA Advanced Taxation (ATX) Practice Exam

What happens to remaining chargeable gains after incorporating relief is applied?

1. They cannot be relieved under any circumstance

2. BADR is available for all remaining gains

3. Only some gains on goodwill are exempt from BADR

4. Tax relief applies as a long-term capital gain

The correct answer is: Only some gains on goodwill are exempt from BADR

The situation surrounding chargeable gains after incorporating relief, particularly Business Asset Disposal Relief (BADR), is nuanced. When considering the implications of BADR, it's crucial to understand that this relief applies specifically to certain types of disposals related to business assets, including goodwill. If the relief is not applicable to the entirety of chargeable gains after calculating the initial relief, only specific gains can still be considered exempt. Goodwill is unique in that there are conditions where it can receive preferential treatment under BADR, thus providing some level of relief on the gains stemming from the sale or disposal of a business's goodwill. This suggests that while not all remaining gains necessarily benefit from relief, some gains derived from goodwill can indeed be exempt. In contrast, the other options present scenarios that do not accurately reflect the tax treatment of chargeable gains post-relief application. Recognizing that only specific gains on goodwill may be exempt highlights the importance of this distinction in navigating capital gains tax and reliefs effectively. Understanding these subtleties aids in proper tax planning and compliance for businesses in the disposal of assets.