ACCA Taxation (F6) Practice Exam

How is capital gains tax treated if cost is more than £6,000 but proceeds are less than £6,000?

1. Proceeds are considered to be zero

2. Proceeds are deemed to be £6,000

3. The loss is not restricted

4. Proceeds will be left unassessed

The correct answer is: Proceeds are deemed to be £6,000

When evaluating capital gains tax in situations where the cost is more than £6,000 but the proceeds from the sale are less than £6,000, it's essential to understand how the legislation operates in relation to capital gains and potential losses. In this scenario, the law stipulates that when capital proceeds are below a certain threshold (£6,000 in this case), the tax treatment applies a specific rule to ensure fair assessment. When the proceeds are less than the threshold and the cost exceeds it, the proceeds are deemed to be £6,000 for the purpose of calculating any potential tax implications. This establishes a minimum figure that can be used in the computation process and prevents taxpayers from reporting an excessively low figure that may undermine the integrity of capital gains calculations. This treatment allows for a balancing effect whereby taxpayers can still report a capital loss, taking into account the deemed proceeds. Therefore, even though the actual proceeds are lower than the threshold, the tax legislation ensures that a baseline is maintained to promote consistent and fair assessments across similar transactions. By establishing this deemed proceeds figure, the regulation avoids complications or discrepancies in reporting and helps taxpayers clearly understand their obligations and rights regarding capital gains tax. Overall, option B accurately reflects this legislative approach.