ACCA Taxation (F6) Practice Exam

What is the primary benefit of rollover relief for a business owner?

1. Immediate cash flow improvement

2. Deferral of CGT until new asset sale

3. Elimination of all tax obligations

4. Increase in asset values

The correct answer is: Deferral of CGT until new asset sale

The primary benefit of rollover relief for a business owner is the deferral of Capital Gains Tax (CGT) until the sale of the new asset. Rollover relief allows a business owner who sells an asset, such as a business or property, to defer the tax liability that would normally arise from the capital gain made on that asset. Instead of paying CGT at the time of the sale, the tax is postponed until a future date when the new asset acquired with the proceeds from the sale is eventually sold. This mechanism can be particularly beneficial for business owners who are reinvesting in new assets or expanding their operations, as it helps maintain cash flow by not requiring immediate tax payment. Since the tax is deferred, it allows businesses to utilize their funds for growth or other investments, rather than allocating a portion of the sale proceeds to cover tax liabilities. Other choices do not accurately reflect the nature of rollover relief. There is no immediate improvement in cash flow since the tax obligation is postponed but not eliminated. Rollover relief does not eliminate all tax obligations, as CGT will still be payable in the future when the new asset is sold. Additionally, while an increase in asset values may occur due to market factors, it is not a direct benefit of