ACCA Taxation (F6) Practice Exam

When should the annual exempt amount be deducted from BADR relief gains?

1. After it has been fully utilized for all gains

2. Before non-BADR qualifying gains are calculated

3. After it has been utilised for all non-BADR qualifying gains

4. At any time throughout the year

The correct answer is: After it has been utilised for all non-BADR qualifying gains

The correct application of the annual exempt amount in relation to Business Asset Disposal Relief (BADR) is significant for determining the calculation of gains. The annual exempt amount should be deducted after it has been utilized for all non-BADR qualifying gains. This is because the annual exempt amount applies first to these non-BADR gains before any is considered for the BADR gains. When considering the calculation sequence, it is essential to first eliminate taxable liabilities associated with non-BADR disposals, since this ensures that the relief is applied appropriately and maximizes the benefit for BADR gains. This approach helps to prevent the annual exempt amount from being used up on gains that do not qualify for BADR relief. In contrast, other options do not reflect the correct sequence for utilizing the annual exemption. For instance, utilizing the exemption before calculating non-BADR gains does not follow tax regulations that dictate the order of deductions. Similarly, the idea of deducting the exempt amount at any time throughout the year does not align with the structured tax year framework that governs capital gains tax relief. Therefore, the correct process is to use the annual exempt amount towards non-BADR gains first and only then apply it to BADR gains.