ACCA Taxation (F6) Practice Exam

Are gains chargeable if both the gross proceeds and cost exceed £6000?

1. Yes, they are fully taxable

2. No, they are exempt

3. Only the amount exceeding £6000 is taxable

4. Only gains that exceed £6000 are taxable

The correct answer is: No, they are exempt

In the context of capital gains tax, there are specific allowances available that can significantly influence whether a gain is chargeable. The annual exempt amount plays a key role in determining tax liability on gains realized from the sale of assets. If both the gross proceeds and the cost exceed the annual exemption threshold of £6,000, any gain realized on the asset falls under the exemption threshold. This means that the gains are not chargeable to tax as long as they do not exceed the exempt amount. Thus, transactions within this limit are considered exempt from capital gains tax. While it might be tempting to believe that any gain or proceeds exceeding this amount is subject to tax, the presence of the exemption threshold operates as a protective measure for small transactions. This ensures that individuals are not financially burdened by taxation on minor gains. Understanding the mechanism of the annual exempt amount helps clarify that if the entire transaction, despite having gross proceeds and costs over £6000, results in gains that do not exceed this annual allowance, those gains remain exempt from tax.