ACCA Advanced Taxation (ATX) Practice Exam

Which family members are NOT classified as connected persons for CGT purposes?

1. Aunt, uncle, niece, nephew, cousin

2. Father, mother, brother, sister

3. Grandparents, grandchildren, great aunts

4. Spouse, in-laws, adopted children

The correct answer is: Aunt, uncle, niece, nephew, cousin

For capital gains tax (CGT) purposes, the classification of connected persons is important as it determines specific tax obligations and benefits related to transactions. Connected persons typically include immediate family members such as parents, siblings, and spouses, as these relationships often result in transactions that could be influenced by personal interests rather than market conditions. The correct answer identifies the family members that do not fall under the connected persons classification for CGT. Aunts, uncles, nieces, nephews, and cousins are generally considered more distant relatives. According to the guidelines, these relationships do not carry the same implications as those of closer familial ties. Therefore, transactions involving these individuals are more likely to be subject to normal market conditions rather than potentially being manipulated due to personal relationships. This distinction is crucial in CGT legislation to prevent avoidance strategies through transactions among closely connected individuals while allowing more distance relatives to interact without the same scrutiny. Understanding the nuances of these classifications ultimately aids in compliance and tax planning.