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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: the use of exemptions and reliefs in deferring and minimising tax liabilities

Priya has made no previous disposals qualifying for business asset disposal relief. She sells her sole trader business, which she has run for six years, and makes qualifying business gains of £400,000. She has no other income or gains in the tax year and has already used her annual exempt amount elsewhere. What is her capital gains tax liability on the business gains?

The liability is £56,000. The £400,000 gain is within the £1,000,000 lifetime limit for business asset disposal relief, so the whole gain is taxed at the 14% rate rather than the 18% or 24% standard rates.

  1. A£56,000Correct
  2. B£72,000
  3. C£96,000
  4. D£0

Explanation

The gains of £400,000 fall within the £1,000,000 lifetime limit for business asset disposal relief, so they are taxed at the 14% rate. 400,000 x 14% = £56,000. The £72,000 option wrongly applies the 18% lower rate, and £96,000 wrongly applies the 24% higher rate.

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