ACCA Taxation (F6) Practice Exam

What happens to the CGT when rollover relief is applied?

1. It is reduced by 50%

2. It is waived completely

3. It is deferred until the sale of the new asset

4. It is paid immediately

The correct answer is: It is deferred until the sale of the new asset

When rollover relief is applied, the capital gains tax (CGT) is deferred until the sale of the new asset. The purpose of rollover relief is to allow taxpayers to reinvest their gains from the sale of an asset into a new qualifying asset without having to immediately pay tax on the capital gain. This tax deferment is designed to encourage investment and reduce the immediate cash flow burden on taxpayers, allowing them to utilize their enhanced capital for further investment. This means that the gain does not get charged at the time of the rollover; instead, it is effectively postponed until the new asset is sold in the future. At that point, the original gain from the old asset will be considered in calculating any tax due on the new asset, assuming no further rollover relief can be claimed. The other options do not accurately reflect the mechanism of rollover relief: a reduction by a set percentage or immediate payment of tax do not align with the fundamental nature of how rollover relief functions.