ACCA Advanced Taxation (ATX) Practice Exam

When dealing with rollover relief, how should proceeds be apportioned if the disposed asset was not fully used for trading?

1. By market value and market share

2. By business use to determine reinvestment

3. By original purchase and selling price

4. Equally among all beneficiaries

The correct answer is: By business use to determine reinvestment

Rollover relief allows taxpayers to defer the tax on gains when they dispose of an asset used in their trade, provided they reinvest the proceeds in a new qualifying asset. When the disposed asset was not fully used for trading purposes, it is essential to determine the portion of the proceeds that can be reinvested in a new asset that will qualify for rollover relief. By utilizing a methodology based on business use, it becomes possible to calculate what percentage of the asset was used for trading as opposed to any other personal or non-business use. This enables a clear understanding of how much of the proceeds can be legitimately apportioned for reinvestment into a new qualifying asset, allowing the taxpayer to effectively maximize their rollover relief benefits. The other options do not appropriately focus on the specifics of business usage and its impact on the qualifying portion for rollover relief, which is why they do not suit this context as effectively.