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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

Tariq incorporates his business and transfers assets with total chargeable gains of £120,000. In exchange he receives shares worth £240,000 and cash of £60,000 (total consideration £300,000). What is the gain deferred by incorporation relief?

The deferred gain is £96,000. Because Tariq receives £60,000 of cash out of £300,000 total consideration, one fifth of the £120,000 gain (£24,000) is taxed now, and the remaining four fifths is deferred against the share base cost.

  1. A£96,000Correct
  2. B£24,000
  3. C£120,000
  4. D£60,000

Explanation

Relief is restricted where non-share consideration is received. Gain immediately chargeable = £120,000 × £60,000/£300,000 = £24,000. Deferred gain = £120,000 − £24,000 = £96,000, or £120,000 × 240/300. The £24,000 option is the gain still chargeable.

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