ACCA Advanced Taxation (ATX) Practice Exam

Which element of taxation is NOT applicable to the capital gains of a UK-resident company from overseas activities?

1. Capital gains are taxable in the UK.

2. Overseas capital gains are generally exempt.

3. Tax relief is available for capital gains.

4. Capital gains from subsidiary sales are subject to UK rules.

The correct answer is: Overseas capital gains are generally exempt.

The correct element regarding capital gains of a UK-resident company from overseas activities is that overseas capital gains are generally exempt. In the UK tax system, specifically concerning capital gains tax, there are provisions that allow certain capital gains derived from activities outside the UK to be exempt from tax. This exemption typically applies to gains made by UK-resident companies on the disposal of foreign assets. The UK tax framework recognizes that there is a distinction between domestic and overseas earnings for capital gains, often favoring the absence of taxation on overseas gains to encourage international investment and activity. Therefore, the idea that overseas capital gains are exempt aligns with the principles of avoiding double taxation and promoting UK businesses’ competitiveness on a global scale. In contrast, capital gains that are taxable in the UK, the availability of tax relief for capital gains, and rules governing capital gains from subsidiary sales reflect the other components of taxation that are applicable to capital gains, showing that not all aspects of taxation are exempt when it comes to overseas gains.