ACCA Advanced Taxation (ATX) Practice Exam

When is capital loss relief not applicable?

1. When the loss is from a non-chargeable asset

2. When capital gains exceed capital losses

3. When losses exceed the annual exemption limit

4. When it is not applied through self-assessment

The correct answer is: When the loss is from a non-chargeable asset

Capital loss relief is essential in tax regulations as it helps to offset gains and reduce taxable income. The situation in which capital loss relief is not applicable relates specifically to the type of asset involved. When a loss arises from a non-chargeable asset, such as personal items or assets that do not qualify for capital gains tax, the loss cannot be used for relief against taxable gains. Non-chargeable assets do not fall under the purview of capital gains tax regulations, meaning that any losses realized from them do not impact the capital gains calculation. In comparison, the other scenarios depict varying contexts for utilizing capital loss relief. When capital gains exceed capital losses, there is no relief needed as the gains are higher, and thus there would be no taxable loss to offset. Similarly, if losses exceed the annual exemption limit, while there may be a reduction in taxable gains, it does not mean that the relief application is invalid; rather, it limits the extent of the claim. Lastly, not applying through self-assessment pertains to procedural matters and does not inherently negate the eligibility of capital loss relief. Therefore, capital loss relief is specifically not applicable in scenarios involving non-chargeable assets.