ACCA Advanced Taxation (ATX) Practice Exam

After the incorporation relief, how is the ownership period calculated for Business Asset Disposal Relief (BADR)?

1. Based solely on the share ownership

2. Combined ownership of the business and the shares

3. Independently for the business and shares

4. Only for the duration the shares were owned

The correct answer is: Combined ownership of the business and the shares

The ownership period for Business Asset Disposal Relief (BADR) following incorporation relief is calculated based on the combined ownership of the business and the shares. This is significant because it recognizes the continuity of ownership that occurs when an individual transfers business assets to a company and retains an interest in that company through shares. When a business is incorporated, the original owners often become shareholders, maintaining a degree of ownership in the assets transferred. Therefore, for the purpose of BADR, it is important to consider how long the individual has owned both the shares in the new company and the business assets prior to the incorporation. This approach ensures that the relief is granted to those who have a long-term stake in the business activities, thus aligning the benefits of BADR with the period of actual investment and involvement in the enterprise. In contrast, focusing solely on share ownership or treating the ownership periods independently for the business and shares would not accurately reflect the continuity or the individual's investment in the business. Consequently, recognizing the combined ownership strengthens the link between the individual's contribution to the business and the benefits provided by BADR upon disposal.