ACCA Taxation (F6) Practice Exam

Letting relief is based on which of the following?

1. The highest gain from the property sale

2. The lowest of non-exempt gain, exempt gain under PPR, or £40,000

3. The property’s last sale price

4. Current market value of the property

The correct answer is: The lowest of non-exempt gain, exempt gain under PPR, or £40,000

Letting relief is a relief provided for individuals who have rented out a property that has been their main residence at some point. It is designed to reduce capital gains tax (CGT) liability when the property is sold. The correct choice emphasizes that letting relief is determined by the lowest value among three specific figures: the non-exempt gain from the sale of the property, any exempt gain under Private Residence Relief (PPR), or a set amount of £40,000. This means that when calculating letting relief, you assess how much gain is subject to tax, take into account your main residence exemption, and also allow for a maximum relief amount. Thus, this approach ensures that the relief is fairly assessed, providing a safeguard for individual sellers against being overly taxed on gains accrued while the property was rented out. This is a departure from the focus of the other options. For example, focusing on the highest gain from the property sale or its last sale price would not reflect the allowances provided by specific reliefs like letting relief. Additionally, the current market value isn't a determinant in the calculation for letting relief, as it is more concerned with actual gains derived from the sale and the residence status of the property. Hence, choosing the lowest among the specified amounts