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Free ACCA Taxation Practice Questions & Answers
300 exam-style Taxation questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
Business Asset Disposal Relief (BADR) reduces CGT to what rate on qualifying gains?
Select an option first.
Correct answer: B — 10%
Explanation: B is correct. BADR (formerly Entrepreneurs' Relief) reduces the CGT rate to 10% on qualifying business asset disposals, up to a lifetime limit of £1 million. A is incorrect — it is not fully exempt. C and D are the standard CGT rates, not the BADR rate.
Question 122
What is the lifetime limit for Business Asset Disposal Relief (BADR)?
Select an option first.
Correct answer: C — £1 million
Explanation: C is correct. The lifetime limit for BADR is £1 million of gains. This limit applies cumulatively across all qualifying disposals throughout a person's lifetime. A, B and D are incorrect limits.
Question 123
For BADR to apply to the disposal of shares in a personal company, how long must the shares have been owned?
Select an option first.
Correct answer: C — At least 2 years
Explanation: C is correct. For BADR to apply to a share disposal in a personal trading company, the individual must have owned at least 5% of the ordinary shares, been an employee or officer, and held both for at least 2 years before disposal. A and B use incorrect minimum periods. D is too long.
Question 124
What is Investors' Relief (IR)?
Select an option first.
Correct answer: B — A 10% CGT rate on gains from shares in unlisted trading companies held for at least 3 years by external investors who are not employees
Explanation: B is correct. Investors' Relief applies a 10% CGT rate to gains on ordinary shares in unlisted trading companies, where the investor is not an employee or officer, the shares were subscribed for (not purchased on market), and held for at least 3 years. The lifetime limit is £10 million (higher than BADR). A, C and D are incorrect.
Question 125
What is rollover relief in the context of CGT?
Select an option first.
Correct answer: B — A relief that defers a gain on the disposal of a qualifying business asset when the proceeds are reinvested in a new qualifying asset within a specified time window
Explanation: B is correct. Rollover relief allows a gain on the disposal of a qualifying business asset to be deferred by rolling it into the cost of a replacement qualifying asset, provided reinvestment occurs within 1 year before or 3 years after disposal. A, C and D are incorrect descriptions.
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Question 126
Gift hold-over relief allows a gain on a gift to be deferred. What is the mechanism?
Select an option first.
Correct answer: B — The gain is deferred by reducing the base cost of the asset in the hands of the recipient
Explanation: B is correct. Gift hold-over relief means the gain is held over — the donor is not taxed at the time of the gift, but the recipient's base cost for future CGT purposes is reduced by the held-over gain. When the recipient eventually sells the asset, the full gain (including the deferred amount) becomes chargeable. A is wrong — the gain is deferred not extinguished. C and D are incorrect mechanisms.
Question 127
What assets qualify for gift hold-over relief as a general rule?
Select an option first.
Correct answer: B — Business assets used in a trade and shares in qualifying unquoted companies, gifted to any individual
Explanation: B is correct. Gift hold-over relief is primarily available for gifts of business assets and unquoted (unlisted) trading company shares. It is also available on any gift that gives rise to an IHT charge. A is too broad — personal assets do not qualify. C and D are incorrect.
Question 128
Disposals between spouses or civil partners who are living together are treated as what for CGT?
Select an option first.
Correct answer: B — At a value that produces neither a gain nor a loss (the no-gain, no-loss rule)
Explanation: B is correct. Transfers between spouses and civil partners who are living together are treated at no-gain, no-loss — the transferring spouse is deemed to dispose of the asset at a value equal to their allowable cost, so no gain or loss arises. The recipient takes over the original cost for future CGT purposes. A, C and D are incorrect.
Question 129
What is EIS deferral relief?
Select an option first.
Correct answer: B — A relief allowing a capital gain to be deferred by investing in shares of an Enterprise Investment Scheme company within a specified period
Explanation: B is correct. EIS deferral relief allows an individual to defer a capital gain (from any source) by investing in shares of an EIS company within one year before or three years after the gain arises. The deferred gain becomes chargeable when the EIS shares are disposed of. A is wrong — deferral is not full exemption. C and D are unrelated.
Question 130
A taxpayer sells an asset and receives proceeds in instalments over 3 years. When is the gain chargeable?
Select an option first.
Correct answer: C — In the tax year of the disposal when the asset was transferred
Explanation: C is correct. CGT is chargeable in the tax year of the disposal — i.e., when the asset changes hands — regardless of when the proceeds are actually received. If payment is deferred, the taxpayer may be able to apply to pay the CGT in instalments, but the gain is assessed in the year of disposal. A, B and D are incorrect.
Question 131
What does 'enhancement expenditure' mean in a CGT computation?
Select an option first.
Correct answer: B — Capital expenditure on improving an asset that is still reflected in its value at the time of disposal
Explanation: B is correct. Enhancement expenditure is capital spending that improves an asset above its original state and is still reflected in the asset's value at disposal. It is added to the base cost, reducing the gain. Maintenance (C) and insurance (A) are revenue expenses, not enhancement expenditure. Legal fees on purchase (D) are incidental costs of acquisition, not enhancement expenditure.
Question 132
What is inheritance tax (IHT)?
Select an option first.
Correct answer: B — A tax charged on the transfer of wealth, principally on estates at death and certain lifetime gifts
Explanation: B is correct. IHT is primarily a tax on the transfer of wealth. It is charged on the estate of a deceased person and on certain lifetime transfers (specifically chargeable lifetime transfers, and potentially exempt transfers that fail within 7 years). A confuses IHT with income tax on inheritance. C and D are incorrect descriptions.
Question 133
What is the nil rate band for IHT purposes?
Select an option first.
Correct answer: B — The threshold below which no IHT is charged on an individual's estate or lifetime transfers
Explanation: B is correct. The nil rate band is the threshold up to which transfers (whether lifetime or on death) are charged to IHT at 0%. Currently set at £325,000. A and C confuse different IHT concepts. D relates to the charity legacy relief for IHT, not the nil rate band.
Question 134
What is a Potentially Exempt Transfer (PET)?
Select an option first.
Correct answer: A — A lifetime gift between individuals that will be fully exempt if the donor survives 7 years
Explanation: A is correct. A PET is a lifetime gift from one individual to another (or to certain trusts). It is potentially exempt — if the donor survives 7 years, it becomes fully exempt from IHT. If the donor dies within 7 years, the PET becomes chargeable and uses the nil rate band. B describes a chargeable lifetime transfer. C is also correct but D is specifically for charities (which are always exempt, not PETs).
Question 135
What is the standard rate of IHT charged on death estates above the available nil rate band?
Select an option first.
Correct answer: C — 40%
Explanation: C is correct. IHT on the estate at death (above the nil rate band) is charged at 40%. The reduced rate is 36% if at least 10% of the estate is left to qualifying charities. The 20% rate (A) is charged on chargeable lifetime transfers (CLTs) above the nil rate band during lifetime.
Question 136
What is the rate of IHT on chargeable lifetime transfers (CLTs) made during the donor's lifetime?
Select an option first.
Correct answer: B — 20%
Explanation: B is correct. CLTs (typically transfers into certain trusts) are chargeable during the donor's lifetime at 20% on the amount above the available nil rate band. If the donor dies within 7 years, additional IHT may be charged to bring the rate up to 40% (death rate), less taper relief. A is the death rate. C applies to the nil rate band. D is incorrect.
Question 137
What is taper relief in the context of IHT?
Select an option first.
Correct answer: B — A reduction in the IHT charge on PETs and CLTs where death occurs between 3 and 7 years after the gift
Explanation: B is correct. Taper relief reduces the IHT payable on PETs (and the additional death charge on CLTs) where the donor survives between 3 and 7 years after the gift. The percentage reduction scales from 20% (3–4 years) up to 80% (6–7 years). It reduces the tax, not the chargeable amount. A, C and D are incorrect.
Question 138
The annual gift exemption allows individuals to make gifts of what amount each tax year free of IHT?
Select an option first.
Correct answer: B — £3,000
Explanation: B is correct. Each individual has an annual exemption of £3,000 per tax year. Any unused annual exemption can be carried forward for one year only. A, C and D use incorrect amounts.
Question 139
What is the small gifts exemption for IHT?
Select an option first.
Correct answer: B — Outright gifts of £250 or less to any one person in a tax year are exempt from IHT
Explanation: B is correct. The small gifts exemption allows outright gifts of up to £250 to any one person per tax year to be completely exempt from IHT. There is no limit on the number of people who can receive small gifts. It cannot be used to exempt part of a larger gift. A, C and D use incorrect amounts or descriptions.
Question 140
What is the marriage/civil partnership exemption for IHT?
Select an option first.
Correct answer: C — A gift made in consideration of marriage is exempt up to set limits depending on the relationship between donor and recipient
Explanation: C is correct. Gifts in consideration of marriage/civil partnership are exempt from IHT up to: £5,000 from a parent, £2,500 from a grandparent or party to the marriage, £1,000 from anyone else. A is also partially correct (inter-spouse transfers are exempt — covered separately). B and D are incorrect descriptions.
Question 141
Transfers between UK-domiciled spouses or civil partners are generally treated how for IHT?
Select an option first.
Correct answer: B — Fully exempt from IHT (with an unlimited inter-spouse exemption)
Explanation: B is correct. Transfers of any amount between UK-domiciled spouses or civil partners are fully exempt from IHT — both during lifetime and on death. A and C are incorrect. D is wrong — the exemption also applies on death (estate passing to surviving spouse).
Question 142
What is the transferable nil rate band (TNRB)?
Select an option first.
Correct answer: B — The ability for a surviving spouse to use any unused nil rate band from their deceased spouse's estate
Explanation: B is correct. On death, a surviving spouse or civil partner can claim the unused proportion of their late partner's nil rate band. This effectively allows up to £650,000 nil rate band for the second death. A is unrelated to IHT. C and D are incorrect descriptions.
Question 143
What is the residence nil rate band (RNRB)?
Select an option first.
Correct answer: B — An additional threshold available when a residence is left to direct descendants on death
Explanation: B is correct. The RNRB provides an additional nil rate band (up to £175,000 currently) where a family home is left to direct descendants (children, grandchildren, etc.) on death. It tapers away for estates above £2 million. A uses incorrect criteria. C and D are unrelated.
Question 144
Normal expenditure out of income is an IHT exemption. What conditions must be met?
Select an option first.
Correct answer: B — The gifts must form part of the donor's normal expenditure, be made from income, and leave the donor with sufficient income to maintain their usual standard of living
Explanation: B is correct. The normal expenditure out of income exemption requires three conditions: the gift must be habitual (part of a pattern of normal expenditure), made from income (not capital), and the donor must retain sufficient income for their usual lifestyle. A, C and D are incorrect or too narrow.
Question 145
What does 'grossing up' mean in the context of IHT on death?
Select an option first.
Correct answer: B — Where the deceased's estate (not the beneficiary) pays the IHT, the gift must be grossed up to find the gross chargeable amount
Explanation: B is correct. Grossing up is required when the deceased's own estate (residue) bears the IHT on a specific legacy, rather than the beneficiary paying it. The legacy must be grossed up (divided by 1 minus the effective IHT rate) to find the gross chargeable amount. This only applies to specific legacies where the estate bears the tax. A, C and D are incorrect descriptions.
Question 146
Agricultural property relief (APR) can reduce the IHT value of qualifying agricultural property. The main rate of APR is what?
Select an option first.
Correct answer: B — 100%
Explanation: B is correct. Agricultural property relief at 100% is available for agricultural property where the owner has the right to vacant possession or where the property was let on or after 1 September 1995 on certain modern tenancies. The 50% rate (A) applies to older tenancies with no right to vacant possession. C and D are incorrect rates.
Question 147
Business property relief (BPR) at 100% applies to which of the following?
Select an option first.
Correct answer: B — A business or an interest in a business (e.g., sole trade), and shares in an unquoted trading company
Explanation: B is correct. BPR at 100% applies to: unincorporated businesses (sole trades, partnerships), and unquoted shares in trading companies (including AIM-listed companies, which are treated as unquoted). Listed shares (A) attract only 50% BPR. Land used by the business but owned separately (C) attracts 50% BPR. Cash (D) is not qualifying business property.
Question 148
IHT on death is generally payable within how many months of the end of the month of death?
Select an option first.
Correct answer: B — 6 months
Explanation: B is correct. IHT arising on death is due 6 months after the end of the month in which death occurred. After this, interest is charged on unpaid IHT. A, C and D are incorrect timeframes. Note: for PETs that become chargeable, IHT is also due 6 months after the end of the month in which death occurred.
Question 149
What is the seven-year accumulation principle in IHT?
Select an option first.
Correct answer: B — When calculating IHT on a chargeable transfer, the nil rate band is reduced by chargeable transfers made in the 7 years preceding that transfer
Explanation: B is correct. The cumulation principle requires that when computing IHT on any transfer, the nil rate band is reduced by the total of chargeable transfers made in the 7 years before that transfer. This prevents donors from giving away their entire nil rate band in multiple small CLTs. A is wrong — not automatically exempt. C is partially correct (PETs over 7 years old are IHT exempt) but D is incorrect.
Question 150
What is the CGT annual exempt amount for 2025/26?
Select an option first.
Correct answer: C — £3,000
Explanation: C is correct. The CGT annual exempt amount for 2025/26 is £3,000, having been significantly reduced in recent years from £12,300 (2022/23) to £6,000 (2023/24) to £3,000 (2024/25 onwards). B was the 2023/24 rate. A was the pre-2023 rate. D is incorrect.
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