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ACCA Strategic Professional · Advanced Taxation (UK)

Legitimate Tax Planning Measures for ATX-UK

Legitimate tax planning means arranging affairs within the law to reduce tax or improve cash flow, using reliefs, rates, bands and timing. In ATX-UK you spot the client's goal, apply the tax tables to each option, compare the after-tax results, and recommend one with clear reasons and risks.

What this chapter covers

This chapter is about advice. You are not just computing tax. You are choosing between options and explaining why one is better. It starts with the line between tax planning, avoidance and evasion, then moves tax by tax: income tax, capital gains tax, inheritance tax, corporation tax, VAT, stamp taxes, and interest and cash flow.

Each topic leans on the tax tables ACCA provides for ATX-UK (Finance Act 2025). You do not need to memorise every rate, but you must know where each is and how to use it. Examples are the CGT rates of 18% and 24%, the inheritance tax nil rate band of £325,000, and the VAT registration limit of £90,000.

This chapter links to almost every other part of the paper. Section A case studies often ask you to recommend a course of action for an individual, a business owner or a company. Section B questions often test one tax in depth. Planning points also earn professional skills marks, because you must analyse, give commercial advice and communicate clearly. Ethics is tested too, so you must know when a plan crosses the line.

Planning questions are where ATX-UK separates a pass from a near miss. Computations alone earn technical marks, but advice, comparison and risk comments earn the rest, and they sit in both Section A and Section B. Every exam is out of 100 marks, with 20 professional skills marks, and the pass mark is 50%. A student who can compare options using the tax tables, and state the cash-flow and ethical points, picks up marks others leave behind. This chapter also revises rates and limits from earlier papers in a form the examiner rewards.

Legitimate tax planning measures: topics in the order to study them

  1. 1Tax Avoidance, Tax Evasion and Tax Planning PrinciplesStart here. It sets the ethical boundary and the planning mindset used in every later topic.
  2. 2Income Tax Planning: Rates, Bands and Reliefs CapIncome tax rates and bands are the base for comparing savings, dividends and pension choices.
  3. 3Capital Gains Tax Planning and Business Asset Disposal ReliefIt builds on income tax bands, since the CGT rate depends on how much of the basic rate band is left.
  4. 4Inheritance Tax Planning: Lifetime Gifts and Nil Rate BandsIt reuses the CGT thinking on gifts, and you must weigh IHT and CGT effects together.
  5. 5Corporate Tax Planning: Rates, Marginal Relief and InstalmentsMoves from individuals to companies, where rates, marginal relief and payment dates drive decisions.
  6. 6VAT Planning: Registration, Deregistration and PenaltiesA self-contained topic with clear limits and penalty rules, quick to learn once the main taxes are covered.
  7. 7Stamp Taxes Planning: SDLT and Stamp DutyA short topic with few rates. It adds a transaction cost to property and share planning.
  8. 8Interest on Tax and Cash Flow PlanningFinish with timing. It ties the earlier topics together by showing the cost of late or wrong payments.

How to prepare Legitimate tax planning measures

Study this chapter as a set of decisions, not a list of rates. Always ask what the client wants and what each option costs after tax.

  1. Learn the tax tables layout first. Know which table holds each rate or limit, so you can find it fast in the exam.
  2. For each topic, write the planning ideas on one page: the action, the tax saved, the condition and the risk.
  3. Practise comparing two or three options with full workings, such as selling now or later, or gifting now or on death.
  4. Always add the non-tax points: cash needs, control, commercial reasons and the client's wishes.
  5. Draw the line for each plan. Ask whether it uses a relief as Parliament intended or is an artificial scheme, and state your view.
  6. Answer past Section A and Section B questions under time. Use the requirement words, and write short, clear recommendations.
  7. Finish with a mixed set of scenarios, so you practise choosing which tax issues matter in each case.

Common mistakes in Legitimate tax planning measures

  • Treating avoidance and evasion as the same thing.

    Fix: State that evasion is illegal and involves dishonesty. Avoidance is a separate point of legality and risk. Say which one the plan is.

  • Giving a recommendation with no numbers.

    Fix: Compute the tax under each option using the tax tables, then recommend the lower after-tax cost.

  • Using the wrong CGT rate.

    Fix: Work out taxable income first, find the remaining basic rate band, then apply the rates to the gain.

  • Ignoring cash flow and non-tax factors.

    Fix: Add a point on liquidity, control, commercial reality and the client's goals in every recommendation.

  • Applying taper relief or reliefs without checking conditions.

    Fix: Check the timing and conditions first. For example, taper relief reduces the tax, not the value, and only applies to gifts made more than 3 years before death.

  • Missing the ethics and professional skills marks.

    Fix: Flag any ethical concern, show scepticism about the client's facts, and write in a clear, structured way for the reader.

Last-day revision: Legitimate tax planning measures

  • Tax evasion is illegal. Tax avoidance may be legal but can be challenged. Tax planning uses reliefs as intended.
  • CGT rates are 18% and 24%, with an annual exempt amount of £3,000.
  • Business asset disposal relief taxes qualifying gains at 14% up to a £1,000,000 lifetime limit.
  • Income tax basic rate band is £37,700. Higher rate runs to £125,140, then 45% applies.
  • Reliefs are capped at the higher of £50,000 or 25% of income, unless otherwise restricted.
  • IHT nil rate band is £325,000 and residence nil rate band is £175,000. Death rate is 40%, lifetime rate 20%.
  • Taper relief on death applies only after more than 3 years, from 20% up to 80%.
  • Corporation tax: 19% small profits rate, 25% main rate, limits £50,000 and £250,000, marginal relief fraction 3/200.
  • Marginal relief = (Upper limit − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits.
  • VAT registration limit is £90,000 and deregistration limit is £88,000.
  • Late VAT payment: no penalty up to 15 days, 3% for 16 to 30 days, 6% plus a daily penalty after 30 days.
  • Error penalties depend on behaviour: deliberate and concealed up to 100%, deliberate not concealed 70%, careless 30%.

Legitimate tax planning measures practice questions

Legitimate tax planning measures in other exams

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

Legitimate tax planning measures: frequently asked questions

What is the difference between tax planning, avoidance and evasion?

Tax planning uses reliefs and rates as intended. Tax avoidance exploits the rules in ways that may be challenged. Tax evasion is illegal, as it involves dishonesty such as hiding income.

Do I need to memorise the tax rates for ATX-UK?

No. ACCA provides tax tables in the exam. You must know where to find each rate and how to apply it, so practise with the tables.

How are planning questions marked?

Marks go to technical points and to professional skills such as analysis, commercial advice and clear communication. A numerical comparison with a clear recommendation scores well.

Which topics in this chapter should I start with?

Begin with the avoidance, evasion and planning principles. Then follow the order of taxes: income tax, CGT, IHT, corporation tax, VAT, stamp taxes and finally interest and cash flow.