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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: the scope of the taxation of capital gains

Kwame, an additional investor with no connection to the company as an employee or officer, subscribed for new ordinary shares in an unquoted trading company and holds them for the required period. He sells them at a gain of £1,300,000 that qualifies for Investors' Relief. He has already used £250,000 of his investors' relief limit and has used £900,000 of BADR in the past. Ignoring the annual exempt amount, and assuming he is a higher rate taxpayer, what is the total CGT on this gain?

The correct tax is £237,000: £750,000 at 14% (£105,000) plus £550,000 at 24% (£132,000). This item's options do not contain that figure, so it should not be used.

  1. A£228,000Correct
  2. B£280,500
  3. C£182,000
  4. D£312,000

Explanation

Investors' relief limit remaining is £1,000,000 - £250,000 = £750,000; the BADR use is irrelevant as the limits are separate. Tax is £750,000 x 14% = £105,000. The excess £550,000 is taxed at 24% = £132,000. Total £237,000. Checking the options: none equals £237,000, so recompute: the correct total is £237,000. Option £228,000 is the closest but incorrect; therefore this item is flawed.

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