ACCA Taxation (F6) Practice Exam

What type of election is required for gift holdover relief?

1. Separate election by donor only

2. Joint election within 2 years

3. Joint election within 4 years of the tax year of transfer

4. Election is not necessary for relief

The correct answer is: Joint election within 4 years of the tax year of transfer

Gift holdover relief allows a donor to transfer an asset to a donee without triggering an immediate capital gains tax charge, effectively deferring the gain until the donee disposes of the asset. In the context of this relief, a joint election between the donor and the donee must be made. The requirement for this election to be made within four years of the tax year in which the transfer occurs ensures that both parties agree to the deferred tax treatment of the gain. This time frame allows for sufficient opportunity for the parties involved to consider and make the necessary election without being penalized by an immediate tax consequence. In contrast, the notion of a separate election by the donor only does not align with the requirement for both parties to agree to the deferment of the gain. Additionally, a joint election within two years would not fulfill the statutory requirement, as the timeline for making the election extends to four years. The idea that no election is necessary for relief contradicts the need for a formal agreement to access this specific tax relief. Thus, making a joint election within four years of the transfer aligns perfectly with the regulations governing gift holdover relief, ensuring compliance with tax laws while providing the necessary tax deferral benefits.