ACCA SP Advanced Taxation (UK) — Questions and Answers
Question 1: Under UK corporate tax rules, the participation exemption (substantial shareholding exemption, SSE) applies when:
- A company sells any shares at a profit
- A company sells shares in a trading company in which it has held at least 10% for 12 consecutive months within the preceding six years (Correct answer)
- A company receives dividends from an overseas subsidiary
- A company claims group loss relief
Correct answer: A company sells shares in a trading company in which it has held at least 10% for 12 consecutive months within the preceding six years
The SSE exempts from corporation tax gains on disposal of shares in qualifying trading companies where the seller has held at least 10% for 12 continuous months within the six years preceding disposal.
Question 2: In the context of UK income tax, which of the following is subject to the 'high income child benefit charge'?
- All parents regardless of income
- Individuals with adjusted net income over £60,000 who or whose partner claims child benefit (Correct answer)
- Only employees earning above £100,000
- Only those with investment income above £50,000
Correct answer: Individuals with adjusted net income over £60,000 who or whose partner claims child benefit
The high income child benefit charge (HICBC) applies where either the claimant or their partner has adjusted net income over £60,000 (increased from £50,000 for 2024/25). A 1% charge applies for every £200 over the threshold.
Question 3: Which of the following correctly describes UK 'entrepreneurs' relief' (now Business Asset Disposal Relief, BADR)?
- A 10% CGT rate on all business disposals without limit
- A 10% CGT rate on qualifying business asset gains up to a lifetime limit of £1 million (Correct answer)
- An exemption from CGT for all small business sales
- A 20% flat rate on disposals of shares in quoted companies
Correct answer: A 10% CGT rate on qualifying business asset gains up to a lifetime limit of £1 million
BADR provides a reduced 10% CGT rate on qualifying business asset disposals (e.g., shares in personal trading companies) up to a lifetime limit of £1 million, incentivising entrepreneurship.
Question 4: Under the UK controlled foreign company (CFC) rules, a charge arises when:
- A UK company imports goods from an overseas subsidiary
- A UK resident company controls an overseas company that pays tax at a low rate and has UK-source profits diverted to it (Correct answer)
- A UK company has a branch in a tax haven
- A UK company receives dividends from any overseas company
Correct answer: A UK resident company controls an overseas company that pays tax at a low rate and has UK-source profits diverted to it
CFC rules (TIOPA 2010) tax UK controlling companies on the undistributed profits of overseas subsidiaries that are subject to low tax, where those profits have been artificially diverted from the UK.
Question 5: Which of the following is a feature of the UK's 'patent box' regime?
- All R&D expenditure is deducted at 230%
- Profits derived from patented inventions are taxed at a reduced 10% corporation tax rate (Correct answer)
- Capital gains on patent disposals are exempt
- Patents are amortised over 25 years for tax purposes
Correct answer: Profits derived from patented inventions are taxed at a reduced 10% corporation tax rate
The patent box regime taxes qualifying profits attributable to UK and European Economic Area patents at 10% rather than the main 25% rate, incentivising IP development in the UK.
Question 6: The 'general anti-abuse rule' (GAAR) in UK tax law:
- Prohibits all tax planning
- Counteracts arrangements that are abusive (giving a tax advantage not consistent with Parliament's intention) but does not affect genuine commercial planning (Correct answer)
- Applies only to VAT avoidance
- Is only enforceable by criminal prosecution
Correct answer: Counteracts arrangements that are abusive (giving a tax advantage not consistent with Parliament's intention) but does not affect genuine commercial planning
GAAR (FA 2013) targets arrangements that are a misuse or abuse of tax provisions, beyond what Parliament intended. It does not prevent legitimate commercial tax planning but counteracts contrived avoidance schemes.
ACCA SP Advanced Taxation (UK)
Under UK corporate tax rules, the participation exemption (substantial shareholding exemption, SSE) applies when: