ExpertEasy2 marksMultiple Choice
ACCA · Question 27 · Chargeable gains for individuals
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: One of the partners, Liam, gifted his 20% share in the partnership to his daughter, Chloe, on 1 December 2023. The market value of the share was £200,000 and Liam's original cost was £50,000. They jointly elect for Gift Hold-Over Relief. What is Chloe's base cost for the partnership share?
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: One of the partners, Liam, gifted his 20% share in the partnership to his daughter, Chloe, on 1 December 2023. The market value of the share was £200,000 and Liam's original cost was £50,000. They jointly elect for Gift Hold-Over Relief. What is Chloe's base cost for the partnership share?
Answer options:
A.
£200,000
B.
£150,000
C.
£50,000
D.
£0
How to approach this question
Calculate the notional gain on the gift (Market Value - Original Cost). Since a joint election for Gift Hold-Over Relief is made, this entire gain is deferred. The donee's base cost is the Market Value minus the held-over gain.
Full Answer
C.£50,000✓ Correct
A partnership share is a qualifying business asset for Gift Hold-Over Relief. The notional gain on the gift is £200,000 (Market Value) - £50,000 (Cost) = £150,000. Because Liam and Chloe jointly elect for the relief, the entire £150,000 gain is held over (deferred). Chloe's base cost is the market value less the held-over gain: £200,000 - £150,000 = £50,000.
Common mistakes
Thinking the base cost is the amount of the gain (£150,000) or the market value (£200,000).
Practice the full ACCA TX — Taxation Practice Exam 5
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