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ACCA Strategic Professional · Advanced Taxation (UK)

Capital Gains Tax and Trusts for ATX-UK

Capital gains tax and trusts is the ATX-UK chapter on taxing gains on disposals of assets and on how trusts are created and taxed. You solve questions by finding the gain, applying reliefs in the right order, using the tax tables for rates, then explaining the result and advising the client.

What this chapter covers

This chapter covers the tax on gains when individuals, trustees and companies dispose of assets. You start with the computation basics, rates and the annual exempt amount. You then add the reliefs that change the answer most: business asset disposal relief, investors' relief, gift holdover relief and rollover relief. Share disposals follow, because share matching rules and reorganisations appear often.

The second half moves to trusts. You learn the types of trust, what happens when assets are put into a trust, and how trustees are taxed on income, gains and inheritance tax. The chapter also links CGT to capital allowances and stamp taxes, so you can see the full tax cost of a transaction rather than one tax in isolation.

This chapter connects to almost everything else in ATX-UK. Inheritance tax links to lifetime gifts into trusts. Owner-managed business questions use business asset disposal relief and share disposals. Corporation tax questions use capital allowances and chargeable gains. Section A case studies often ask you to compare routes, so you need to know how each tax interacts with the others.

ATX-UK is a written exam, and every question is compulsory. Section A is a 50-mark case study and Section B has two 25-mark questions, so you cannot skip a weak area. CGT and trusts is a core area that can appear in either section, often combined with inheritance tax or business sale advice. The computations are mechanical once you have a method, which makes them reliable marks. The advice parts also carry professional skills marks, so clear, client-focused explanations of the best route earn credit on top of the technical marks.

Capital gains tax and trusts: topics in the order to study them

  1. 1CGT Rates, Annual Exempt Amount and Computation BasicsEverything else builds on the basic gain computation, the 18% and 24% rates and the £3,000 annual exempt amount.
  2. 2Business Asset Disposal Relief and Investors' ReliefThese reliefs give a 14% rate on qualifying gains up to a £1,000,000 lifetime limit, and they are among the most tested reliefs.
  3. 3Gift Holdover Relief and Rollover ReliefOnce you know the basic computation, you learn how to defer gains and how deferral interacts with other reliefs.
  4. 4Share Disposals, Reorganisations and Share MatchingShare matching is a rule-driven skill that needs the basics and reliefs in place first.
  5. 5Capital Gains Tax, Capital Allowances and Stamp Taxes LinksThis topic joins CGT to capital allowances and stamp taxes so you can advise on the total tax cost of a deal.
  6. 6Trusts: Types, Creation and CGT on TransfersYou need the CGT and holdover rules before you can work out the tax when assets go into or out of a trust.
  7. 7Trusts: Income Tax, Interest and Inheritance TaxThis comes last because it draws on income tax rates, inheritance tax rules and the trust basics from the previous topic.

How to prepare Capital gains tax and trusts

Work from method to application. The computations are mechanical, but the exam wraps them in scenarios and asks for advice.

  1. Learn the layout of a CGT computation and practise it until the steps are automatic. Use the tax tables supplied in the exam to find rates, the annual exempt amount and the relief limits rather than memorising them as numbers.
  2. Study each relief with its conditions. For each one, write down who qualifies, what it does to the gain and what it does to the base cost, then test yourself on a short scenario.
  3. Practise share matching with sets of purchases and sales. Always apply the order of matching the same way and show each step in your workings.
  4. Draw a one-page map of how CGT links to capital allowances, stamp taxes and inheritance tax. Use it to spot combined questions.
  5. For trusts, make a table of trust types against their income tax, CGT and inheritance tax treatment. Then do questions where assets are transferred in and out.
  6. Answer past-style Section A and B questions under timed conditions. Show all workings, state assumptions and finish each answer with a clear recommendation for the client.
  7. Review your answers against the requirement. Check that you applied each fact in the scenario and earned the professional skills marks, not just the computation marks.

Common mistakes in Capital gains tax and trusts

  • Applying reliefs in the wrong order or forgetting how one relief affects another.

    Fix: Write the order of reliefs in your workings every time and practise questions where two reliefs apply to the same gain.

  • Using the wrong CGT rate or forgetting the annual exempt amount.

    Fix: Find the taxable income first, fill the basic rate band, then apply the rates from the tax tables and deduct the annual exempt amount.

  • Getting share matching wrong or mixing up shares bought on different dates.

    Fix: List all share transactions by date, match step by step and show the remaining holding after each match.

  • Treating trusts as one tax topic instead of three: income tax, CGT and inheritance tax.

    Fix: For every trust event, ask separately what the income tax, CGT and inheritance tax consequences are, and write each one down.

  • Giving computations with no advice or recommendation.

    Fix: End each answer by applying the result to the client's situation and recommending a course of action, which earns professional skills marks.

  • Ignoring links to capital allowances and stamp taxes when advising on a sale or purchase.

    Fix: When a scenario involves a business asset, property or shares, check for capital allowance balancing adjustments and stamp taxes before finalising the advice.

Last-day revision: Capital gains tax and trusts

  • CGT rates for individuals are 18% (lower) and 24% (higher), and the annual exempt amount is £3,000.
  • Business asset disposal relief and investors' relief both have a £1,000,000 lifetime limit and a 14% rate.
  • Gift holdover relief defers the gain by reducing the recipient's base cost.
  • Rollover relief defers a gain by reducing the base cost of the replacement asset.
  • Share matching: apply the matching rules in the correct order before computing any gain.
  • Stamp duty on shares is 0.5%, and non-residential SDLT is 0% to £150,000, 2% to £250,000 and 5% above.
  • Capital allowances rates include 18% main pool, 6% special rate pool and 3% structures and buildings allowance.
  • Inheritance tax: nil rate band £325,000, residence nil rate band £175,000, lifetime rate 20%, death rate 40%.
  • Taper relief on death applies only to gifts made more than three years before death.
  • Trustees and beneficiaries are taxed differently, so state who bears each tax.
  • Show workings to the nearest £ and apportion to the nearest month, as the exam instructions require.

Capital gains tax and trusts practice questions

Capital gains tax and trusts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Capital gains tax and trusts: frequently asked questions

What rates of CGT do I use in ATX-UK?

Use the tax tables given in the exam. They show a lower rate of 18% and a higher rate of 24%, with an annual exempt amount of £3,000. Business asset disposal relief and investors' relief gains are taxed at 14% up to the £1,000,000 lifetime limit.

Do I need to memorise the tax rates?

No, the tax tables are provided in the exam, so focus on knowing where to find each figure and how to apply it. You do need to know the rules and conditions that the tables do not give you.

How are trusts tested in ATX-UK?

Trusts usually appear as part of a larger scenario involving lifetime gifts, a family business or estate planning. You may be asked about CGT on transfers into a trust, income tax on trust income and inheritance tax charges. Answer each tax separately.

Why does the chapter include stamp taxes and capital allowances?

Real transactions trigger several taxes at once. The exam expects you to advise on the total tax effect of buying or selling property, shares or business assets, so you must link these taxes to your gains computation.

How should I split my time between computations and explanations?

Do both in every answer. Computations earn technical marks, while explanations and recommendations help you earn professional skills marks. Check the requirement and the mark allocation to decide how much to write on each.