ACCA Taxation (F6) Practice Exam

Which type of chargeable gain should the annual exempt amount be used against first for tax relief?

1. Corporate assets

2. Residential property

3. Stocks and shares

4. Wasting chattels

The correct answer is: Residential property

The annual exempt amount for Capital Gains Tax should be used against chargeable gains from residential property first. This prioritization is important because disposals of residential property are typically subject to a higher level of taxation compared to other types of assets. As a result, individuals are incentivized to utilize their annual exempt allowance against these gains to reduce their overall tax liability. Under UK tax law, residential property is treated distinctly due to the additional implications it can have on taxation, including the potential for higher rates of Capital Gains Tax. The exemption helps mitigate some of the financial burden associated with realized gains from property sales. In contrast, other asset classes such as stocks and shares or wasting chattels do not carry the same level of tax implications and thus do not benefit from this priority in the application of the annual exempt amount. This approach aims to ensure that the most tax-advantageous positions are utilized effectively, safeguarding individuals from excessive tax burdens specifically tied to property dealings.