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

Tom, a UK resident higher rate taxpayer, has taxable income well above £37,700. He has a chargeable gain of £50,000 on the sale of shares that qualifies for business asset disposal relief, and no other gains. His lifetime BADR limit is unused. Using the ATX-UK tax tables, what is the capital gains tax liability if the annual exempt amount is set against the gain to give the lowest tax?

With only a qualifying gain, the £3,000 annual exempt amount reduces it to £47,000, which is taxed at the 14% BADR rate. The liability is therefore £6,580, and the BADR rate applies regardless of his higher rate band.

  1. A£7,000
  2. B£6,580Correct
  3. C£11,280
  4. D£6,720

Explanation

The annual exempt amount of £3,000 is best set against a gain taxed at the higher rate rather than the 14% rate, but here all the gain is qualifying and the only gain. So the taxable gain is £47,000 at 14% = £6,580. Option £7,000 ignores the exempt amount, and £11,280 uses 24% on £47,000.

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