ACCA Advanced Taxation (ATX) Practice Exam

What is the first step to consider when determining which CGT reliefs may apply?

1. BADR/IR

2. Deferral relief

3. Exemption relief

4. EIS relief

The correct answer is: Exemption relief

The first step in determining which Capital Gains Tax (CGT) reliefs may apply is to evaluate exemption reliefs. This is because exemption reliefs provide a straightforward means of reducing or eliminating a capital gains tax liability on specific types of gains, such as those arising from the sale of an individual's primary residence or on certain specified charges. By starting with exemption reliefs, taxpayers can quickly ascertain if any gains can be excluded from taxation entirely, facilitating a more efficient analysis of their overall tax situation. If exemption reliefs do not apply, one can then consider other reliefs, such as deferral relief, Business Asset Disposal Relief (BADR), and Enterprise Investment Scheme (EIS) relief, which have different conditions and implications. Considering exemption reliefs first allows for a clearer understanding of a taxpayer's position and can cause significant impacts on the overall CGT liability.