ACCA Advanced Taxation (ATX) Practice Exam

How long must an individual own shares before selling them back to a company for capital treatment?

1. Two years

2. Three years

3. Five years

4. Seven years

The correct answer is: Five years

To achieve capital gains treatment on the sale of shares back to a company, an individual must own those shares for a specific holding period. The correct answer is five years, which aligns with regulations that dictate that shares must typically be held for a minimum duration before any sale to ensure they qualify for favorable capital treatment. Holding shares for less than this period often subjects realizations to different tax treatments, limiting the benefits associated with long-term capital gains, which can include lower tax rates. This five-year holding period encourages long-term investment in the company, aligning with broader fiscal policies aimed at promoting stability and growth in the market. Other options present either shorter or longer retention periods, which do not conform to the established guidelines for obtaining the intended capital treatment when selling back to a company. Understanding this timing is crucial for tax strategy and investment decision-making in the context of capital gains taxation.