Advanced Taxation (UK) · Income tax: the use of exemptions and reliefs in deferring and minimising income tax liabilities

Interaction with CGT, IHT, SDLT and VAT Reliefs in ATX

Updated 11 October 2026 · Fact-checked

This topic tests whether you can see that one planning step affects several taxes. Extracting profits, selling shares, gifting assets or moving property can change income tax, CGT, IHT, stamp taxes and VAT at once. You solve it by computing each tax, adding them, and advising on the lowest total cost.

Understand Interaction with CGT, IHT, SDLT and VAT Reliefs

A planning idea rarely touches one tax. Take a director who sells shares in her company. She pays CGT on the gain. The buyer pays stamp duty on the shares. If she gives the shares away instead, there may be CGT, and inheritance tax (IHT) if she dies within seven years. A dividend taken first would be income tax. You must see all of these in the scenario.

The examiner gives you the rates in the tax tables. Your job is to choose the right ones and apply them in the right order. For CGT, the lower rate is 18% and the higher rate is 24%, with an annual exempt amount of £3,000. Business asset disposal relief (BADR) and investors' relief both tax qualifying gains at 14%, with a £1,000,000 lifetime limit for each relief. The income tax position decides which CGT rate applies, because the rate depends on how much of the basic rate band is left after taxable income.

For IHT, the nil rate band is £325,000 and the residence nil rate band is £175,000. The rate on the excess is 20% on lifetime chargeable transfers and 40% on death. A gift to an individual is a potentially exempt transfer (PET). It becomes chargeable only if the donor dies within seven years. It is then taxed at the 40% death rate, reduced by taper relief where it applies. A gift into a trust is a chargeable lifetime transfer (CLT). It is taxed at 20% on the excess over the nil rate band during lifetime, with additional tax at death if the donor dies within seven years. Taper relief reduces the tax, not the value, on gifts made more than three years before death. Gifts made close to death get little or no reduction.

For transaction taxes, stamp duty on shares is 0.5%. Stamp duty land tax (SDLT) on non-residential property is 0% to £150,000, 2% from £150,001 to £250,000 and 5% above £250,000. These are slice rates. For VAT, the standard rate is 20%, the registration limit is £90,000 and the deregistration limit is £88,000. A business near the limit may need to register, or may be able to leave.

Good answers do three things. They identify every tax triggered. They quantify each one with the right rate. They then compare options and recommend one, with the reasons and any risks.

Key rules to remember

CGT rates: Lower rate 18%; higher rate 24%; annual exempt amount £3,000; Use the lower rate only on the part of the taxable gain that fits within the unused basic rate band (£37,700 less taxable income).
BADR and investors' relief: Qualifying gains taxed at 14%; lifetime limit £1,000,000 for each relief; Gains above the limit are taxed at 18% or 24%. The limits are separate for each relief.
IHT rates: Nil rate band £325,000; residence nil rate band £175,000; lifetime rate 20%; death rate 40%; Tax is charged on the excess over the nil rate band. The residence nil rate band depends on the facts, such as a home passing to direct descendants.
IHT taper relief: 3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80% reduction in tax; Reduces the tax, not the gift value. It only helps if the gift is not fully covered by the available nil rate band, so that tax is actually payable.
SDLT non-residential: 0% to £150,000; 2% on £150,001 to £250,000; 5% above £250,000; Slice rates, applied to each band of the price.
Stamp duty on shares: 0.5% of the consideration; Paid by the buyer.
VAT limits: Registration £90,000; deregistration £88,000; standard rate 20%; Taxable turnover is tested against these limits.
Income tax bands: Basic £1 to £37,700; higher £37,701 to £125,140; additional over £125,140. Normal rates 20%, 40%, 45%. Dividend rates 8.75%, 33.75%, 39.35%; Dividend nil rate band £500.

How to solve Interaction with CGT, IHT, SDLT and VAT Reliefs questions

Use this order for any advice question that mixes taxes. It keeps your answer structured and earns the analysis marks.

1Read the requirement and list the people involved: the client, family members and any company.
2Underline each planned transaction: a sale, gift, dividend, property purchase or change of turnover.
3For each transaction, list every tax it may trigger: income tax, CGT, IHT, stamp duty, SDLT or VAT.
4Work out taxable income first, because it decides the basic rate band left for CGT and the dividend rate.
5Compute each tax with the table rates. Show every working, round to the nearest £, and apportion to the nearest month.
6Compare the options in total, including who pays each tax and when.
7Recommend one option and explain why. Note risks, conditions for reliefs and any assumptions.
8Write in the format asked, such as a report or memo, with clear headings and a short conclusion.

Quickest way: One-line-per-tax grid

When to use it: Use it when time is short and the scenario has several transactions.

Draw a quick grid with the taxes as rows and the options as columns.
Fill each cell with the figure from the tax tables, starting with income tax.
Total each column and circle the lowest cost.
Write the recommendation first, then the supporting numbers and one risk.

Common mistakes in Interaction with CGT, IHT, SDLT and VAT Reliefs

Applying 14% BADR to gains above the £1,000,000 lifetime limit.
Students remember the rate but forget the cap and earlier claims.
Fix: Check the limit and any earlier use. Tax the excess at 18% or 24% depending on the basic rate band.
Using the 18% CGT rate without checking taxable income.
Students skip the income tax computation.
Fix: Compute taxable income first. Only the unused part of the £37,700 basic rate band gets the lower rate.
Applying taper relief to the value of the gift.
The name suggests the gift is reduced.
Fix: Compute the tax first. Then reduce that tax by the taper percentage. Remember the nil rate band is used before tax arises.
Charging SDLT at one rate on the whole price.
Students treat the bands as a single rate.
Fix: Apply 0%, 2% and 5% to each slice of the price.
Testing VAT registration on total turnover rather than taxable turnover, or confusing the two limits.
The £90,000 and £88,000 limits look alike.
Fix: Use taxable supplies. £90,000 is for registration and £88,000 is for deregistration.
Giving figures with no recommendation.
Students run out of time after the computation.
Fix: Reserve the last few minutes for a clear recommendation, reasons and risks. These earn professional skills marks.

Worked examples

Example 1

Priya, an additional rate taxpayer, sells her shares in her trading company and makes a gain of £400,000 that qualifies for BADR. This is her only gain in the tax year. She has made no earlier BADR claims and has not used her annual exempt amount. Compute her CGT.

Show the solution

Gain £400,000 is within the £1,000,000 lifetime limit, so BADR applies at 14%.
Set the annual exempt amount of £3,000 against gains taxed at the highest rate first, because that saves the most tax. Here the whole gain is a BADR gain taxed at 14%, so there is no gain at 18% or 24% to use it against. Set it against the BADR gain.
Taxable gain: £400,000 − £3,000 = £397,000.
CGT: £397,000 × 14% = £55,580.
If she had other gains taxed at 24%, you would set the annual exempt amount against those first, because that saves more tax.

Answer: CGT payable is £55,580, on the assumption that this is her only gain.

Example 2

Compute the SDLT on a £400,000 non-residential property purchase and, separately, the stamp duty on a £60,000 share purchase.

Show the solution

SDLT on the property: first £150,000 at 0% = £0.
Next £100,000 (£150,001 to £250,000) at 2% = £2,000.
Remaining £150,000 (£250,001 to £400,000) at 5% = £7,500.
SDLT total: £2,000 + £7,500 = £9,500.
Stamp duty on the shares (a separate purchase): £60,000 × 0.5% = £300.

Answer: SDLT on the property is £9,500 and stamp duty on the shares is £300.

Exam tips

Always compute taxable income before CGT. The examiner often hides the rate choice there.
Write the tax table figures you use next to each working so markers can follow your method.
Use the requested format, such as a report, with a short recommendation up front. Professional skills marks reward clarity.
Quote conditions for reliefs briefly, then check them against the facts in the scenario.
State your assumptions. The supplementary instructions say to assume 2025/26 rates continue.

Practice questions from Income tax: the use of exemptions and reliefs in deferring and minimising income tax liabilities

Interaction with CGT, IHT, SDLT and VAT Reliefs in other exams

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

ACCA Applied SkillsBusiness Asset Disposal Relief and Investors' Relief

Interaction with CGT, IHT, SDLT and VAT Reliefs: frequently asked questions

What is the CGT rate for business asset disposal relief in ATX-UK?

Qualifying gains are taxed at 14%, up to a lifetime limit of £1,000,000. Gains above the limit are taxed at the normal 18% or 24% rates.

How does taper relief work for inheritance tax?

It reduces the tax on a gift made more than three years before death. The reduction is 20% for 3 to 4 years, 40% for 4 to 5, 60% for 5 to 6 and 80% for 6 to 7. It reduces the tax, not the value of the gift.

What are the VAT registration and deregistration limits?

The registration limit is £90,000 and the deregistration limit is £88,000. The standard rate is 20%.

How should I write a tax advice report in ATX-UK?

Answer the requirement directly, with headings for each issue. Show calculations, compare options, give a clear recommendation and note risks. Keep the tone professional and the points concise.