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ACCA Applied Skills · Taxation (UK) · The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Mohammed sold his entire sole trader business, which he had run for six years, on 10 December 2025. The disposal qualifies for business asset disposal relief (BADR). He has made no previous claims for BADR. The only gain is a chargeable gain of £200,000 on goodwill. He has taxable income of £60,000 for 2025/26 and has not used his annual exempt amount elsewhere. What is Mohammed's capital gains tax liability for 2025/26?

The liability is £27,580. The £200,000 gain is reduced by the £3,000 annual exempt amount to £197,000, and because the entire gain qualifies for business asset disposal relief it is taxed at 14%. This gives £197,000 x 14% = £27,580.

  1. A£27,580Correct
  2. B£28,000
  3. C£28,000 plus tax on £3,000 at 24%
  4. D£27,580 plus £720

Explanation

The gain qualifying for BADR is taxed at 14%, and the annual exempt amount of £3,000 is deducted first. Taxable gain is £200,000 - £3,000 = £197,000. Tax is £197,000 x 14% = £27,580. Option B ignores the annual exempt amount. The other options add tax that is not due.

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