ACCA Advanced Taxation (ATX) Practice Exam

In a share-for-share exchange, which period must be included in the two-year ownership requirement for BADR?

1. The holding period of the new shares only

2. The holding period of the original shares only

3. The holding period of both the new and original shares

4. No ownership period is required

The correct answer is: The holding period of both the new and original shares

In a share-for-share exchange, the requirement for Business Asset Disposal Relief (BADR) stipulates that an individual must have held the shares for a period of two years leading up to the disposal to qualify for relief. It's important to understand that the two-year ownership requirement encompasses both the holding period of the original shares and the holding period of the new shares received in the exchange. When shares are exchanged under this type of arrangement, the original shares' period of ownership is carried over to the new shares. This means that the time the individual held the original shares contributes to the qualifying period for the new shares. Therefore, for qualifying for BADR, both periods are combined to meet the total two-year holding requirement. This provision is designed to ensure that individuals who are making a genuine long-term investment in the company can take advantage of the tax relief, reflecting the intention behind BADR to support business investment. Thus, considering the combined holding periods provides a clear basis for the individual to claim relief on the gain on disposal of the new shares.