ACCA SP Advanced Taxation (ATX-UK) — Questions and Answers
Question 1: A UK sole trader has been trading for several years and is considering incorporating the business. Which of the following Capital Gains Tax (CGT) reliefs is specifically designed to defer gains arising on the transfer of a business to a company?
- Entrepreneurs' relief (Business Asset Disposal Relief)
- Rollover relief on replacement of business assets
- Incorporation relief under s.162 TCGA 1992 (Correct answer)
- Holdover relief for gifts of business assets
Correct answer: Incorporation relief under s.162 TCGA 1992
Section 162 TCGA 1992 provides incorporation relief, which automatically applies when a business (not just individual assets) is transferred to a company as a going concern in exchange wholly or partly for shares. The gains on the chargeable assets transferred are deferred by reducing the base cost of the shares received. This is distinct from BADR (which provides a lower rate but doesn't defer) and rollover relief (which relates to replacement of assets).
Question 2: For the 2025/26 tax year, an individual makes a chargeable gain of £40,000 on the disposal of a residential property that has never been their main residence. After deducting the annual exempt amount of £3,000, what rate(s) of CGT apply if they are a higher rate taxpayer?
- 20% on the entire net gain
- 24% on the entire net gain (Correct answer)
- 10% on the first £37,700, 20% on the remainder
- 28% on gains up to April 2024, 24% on gains thereafter
Correct answer: 24% on the entire net gain
For the 2025/26 tax year, residential property gains (on properties that are not the individual's main residence) are taxed at 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers. Since this individual is already a higher rate taxpayer, the entire net gain of £37,000 (£40,000 - £3,000 AEA) is taxed at 24%. The rates for residential property are higher than the standard CGT rates of 10%/20%.
Question 3: A UK company has a 31 March year end and makes a trading loss of £500,000 in the year ended 31 March 2026. Which of the following loss relief claims can the company make under Corporation Tax rules?
- Carry the loss back 3 years and offset against total profits
- Offset against total profits of the current period and/or carry back 1 year against total profits, then carry forward against future total profits (Correct answer)
- Carry the loss forward indefinitely against future trading profits only
- Offset against total profits of the current period only, with no carry back or forward
Correct answer: Offset against total profits of the current period and/or carry back 1 year against total profits, then carry forward against future total profits
Under s.37 CTA 2010, a company can offset a trading loss against total profits (including investment income and chargeable gains) of the current accounting period. Any remaining loss can be carried back 12 months against total profits. Under s.45A/45B CTA 2010, losses can also be carried forward against future total profits (not just trading profits), subject to the £5 million deductions allowance and 50% restriction for amounts above this threshold.
Question 4: An individual dies on 15 January 2026 with an estate valued at £625,000. They had made no lifetime transfers. The estate includes a family home worth £350,000 left to their child. What is the Inheritance Tax (IHT) liability on the estate?
- £50,000 (Correct answer)
- £30,000
- £20,000
- £60,000
Correct answer: £50,000
The nil rate band (NRB) is £325,000. The residence nil rate band (RNRB) of £175,000 applies because the home is passed to a direct descendant (child). Total available bands = £325,000 + £175,000 = £500,000. Taxable estate = £625,000 - £500,000 = £125,000. IHT at 40% = £125,000 × 40% = £50,000. The RNRB is a valuable additional relief but only applies when a qualifying residential property is left to direct descendants (children, grandchildren).
Question 5: A UK VAT-registered trader supplies both standard-rated and exempt supplies. In a VAT quarter, the trader incurs £30,000 of input VAT, of which £10,000 relates to taxable supplies, £12,000 relates to exempt supplies, and £8,000 is unattributed. Using the partial exemption standard method, how much input VAT can the trader recover?
- £10,000
- £18,000
- £14,400
- £15,200 (Correct answer)
Correct answer: £15,200
Under the partial exemption standard method: (1) Directly attributable to taxable supplies: £10,000 (fully recoverable). (2) Directly attributable to exempt supplies: £12,000 (not recoverable). (3) Unattributed (residual): £8,000 must be apportioned using the standard method ratio = taxable supplies / total supplies. Assuming the ratio based on values gives approximately 65% recoverable: £8,000 × 65% = £5,200. Total recoverable = £10,000 + £5,200 = £15,200. The de minimis test may also apply if exempt input tax is below £625 per month on average.
Question 6: An individual is considering making a claim for Enterprise Investment Scheme (EIS) income tax relief. Which of the following is a condition that must be met?
- The investor must hold the shares for a minimum of 5 years
- The company must be listed on the London Stock Exchange
- The investor must not be connected with the company, and shares must be held for at least 3 years to retain the relief (Correct answer)
- The maximum investment qualifying for relief is £500,000 per tax year
Correct answer: The investor must not be connected with the company, and shares must be held for at least 3 years to retain the relief
EIS requires: the investor must not be 'connected' with the company (broadly, must not hold more than 30% of the company's share capital or be an employee, though directors are permitted in certain circumstances). Shares must be held for at least 3 years (not 5) to retain the income tax relief of 30%. The company must be unquoted (not listed on the main market). The annual investment limit is £1,000,000 (or £2,000,000 if at least £1,000,000 is invested in knowledge-intensive companies).
ACCA SP Advanced Taxation (ATX-UK)
A UK sole trader has been trading for several years and is considering incorporating the business.
Which of the following Capital Gains Tax (CGT) reliefs is specifically designed to defer gains arising on the transfer of a business to a company?