ACCA Advanced Taxation (ATX) Practice Exam

What is the consequence of a donee emigrating within 6 years of the end of the tax year of disposal regarding gift holdover relief?

1. The gift relief is lost

2. The gift becomes chargeable at the time of emigration

3. No impact on the gift relief

4. The donee pays tax based on original gift value

The correct answer is: The gift becomes chargeable at the time of emigration

When a donee emigrates within six years of the end of the tax year of a gift's disposal, the gift holdover relief can be affected. If the donee emigrates within this timeframe, the gift becomes chargeable to tax at the time of emigration. This is significant because under normal circumstances, gift holdover relief allows the donor to defer the payment of capital gains tax on the asset given as a gift. However, if the donee leaves the country and does not remain a UK resident, the relief no longer applies, leading to a tax charge that crystallizes when they emigrate. This situation reflects the continuous relationship between residency and tax obligations, impacting the timing and method of tax assessment regarding the gifted asset. Hence, emigrating within the stipulated period invokes immediate tax implications, which reinforces the importance of understanding the residency rules within the context of gift tax considerations.