ACCA Advanced Taxation (ATX) Practice Exam

Which of the following reliefs is specifically associated with reinvestment of Capital Gains?

1. Business Asset Disposal Relief

2. Enterprise Investment Scheme Relief

3. Inheritance Tax Relief

4. Private Residence Relief

The correct answer is: Enterprise Investment Scheme Relief

The relief specifically associated with the reinvestment of capital gains is the Enterprise Investment Scheme (EIS) Relief. EIS is designed to encourage investments in small, higher-risk companies by allowing investors to defer their capital gains tax (CGT) liability. When an investor makes a capital gain from the sale of an asset and reinvests that gain into shares of an eligible company under the EIS, they can defer the CGT until they dispose of the EIS shares. This reinvestment approach not only provides tax advantages but also supports new and growing businesses, making it a key strategy for promoting economic growth through investment in smaller enterprises. In contrast, while Business Asset Disposal Relief offers relief to individuals disposing of certain business assets, it does not specifically focus on the reinvestment aspect. Inheritance Tax Relief and Private Residence Relief are tailored to other contexts—inheritance tax relief pertains to estate transfers upon death, and private residence relief applies to the sale of one's main home. Thus, EIS Relief is uniquely aligned with the strategy of reinvesting capital gains, making it the correct choice in this context.