ACCA Advanced Taxation (ATX) Practice Exam

What is the maximum amount of gain that can be exempt when investing in SEIS shares?

1. 25%

2. 50%

3. 75%

4. 100%

The correct answer is: 50%

When investing in Seed Enterprise Investment Scheme (SEIS) shares, the maximum amount of gain that can be exempt from capital gains tax is 50%. This is particularly significant as SEIS is designed to encourage investment in small, high-risk companies by offering tax reliefs to investors. The rationale behind this 50% exemption is that while investors can benefit from relief on the initial investment, the gains made from the sale of SEIS shares can also be exempt, provided certain conditions are met. The scheme is aimed at promoting the growth of new startups, and the capital gains tax relief further incentivizes investors to back these fledgling companies. In the context of the other choices, 25%, 75%, and 100% do not accurately reflect the current legislative provisions for SEIS gains. While 100% might seem appealing as a tax relief, it does not apply in this case, underlining that investors are still subject to some level of tax on their gains unless specific criteria are fulfilled that might allow for other forms of relief. Therefore, the correct maximum exemption is indeed 50%.