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I did a mock test on the ACCA practice platform and wondered why the below answer is correct regarding annual exemption. The question was:
How will the 2019-20 and 2020-21 annual exemptions be applied to these transfers?
The answer was: £400 set against the gifts to her nieces, £5,600 against the gift to her daughter
(2) On 2 May 2020, Marwa made cash gifts to her three nieces. The first niece was given £100, the second niece was given £200, and the third niece was given £400.
(3) On 14 September 2020, Marwa made a gift of 6,500 £1 ordinary shares in Amaranth Ltd, an unquoted investment company, to her daughter.
I assumed the answer would be £300 (£100 + £200) AE against the small gifts to the two nieces as below £250 each and £6,000 (£3,000+£3,000) regarding the gift to her daughter.
The small gift exemption of £250 per donee per tax year applies to the gifts made to two different nieces (i.e neice 1 & 2)
The 3rd niece is gifted £400 where the Small gifts exemption does not apply and Annual exemption therefore applies.
Since the gift to 3rd niece was made before the gift of shares, annual exemption of £3000 (current tax year’s) is applied and remaining £2600 is left for further use.
When she gifts the shares to her daughter,
Total available annual exemption is therefore, £5600 (£2600+£3000)
Note: The £3000 annual exemption is of previous tax year’s.
To use the previous tax year’s annual exemption, current year’s annual exemption is to be fully utilised first..
I hope you understood.
Thank you very much!
Tabasumze’s answer is correct.