ACCA Advanced Taxation (ATX) Practice Exam

What is the base cost of shares for Capital Gains Tax (CGT) in the SAYE scheme?

1. Market value at exercise

2. Price paid

3. Fair market value upon sale

4. Intrinsic value at grant

The correct answer is: Price paid

In the context of the Save As You Earn (SAYE) scheme for Capital Gains Tax (CGT) purposes, the base cost of shares is defined as the price paid for the shares when they are acquired. This price represents the actual monetary investment made by the employee to obtain the shares upon exercise of their rights under the SAYE scheme. When discussing capital gains, the base cost is crucial as it is subtracted from the selling price to calculate the gain or loss on disposal. In a SAYE scheme, employees typically save a fixed amount over a specified period and can use these savings to purchase shares at a predetermined price. Therefore, the cost of the shares is effectively the amount paid by the employee, which establishes the base cost for CGT calculations. Other potential bases, such as the market value at exercise or intrinsic value at grant, do not accurately reflect the actual monetary investment made by the employee. The market value at exercise does not consider how much the employee has actually paid, which is the critical figure for calculating any potential capital gain. Similarly, the fair market value upon sale pertains to the sale price rather than the original investment and therefore is not pertinent to establishing the base cost for CGT. Understanding this concept is vital for employees