ACCA Advanced Taxation (ATX) Practice Exam

Is goodwill considered a relevant business asset for BADR when transferred to a close company?

1. Yes, it is a relevant asset

2. No, if transferred by an individual to a related close company

3. Only if the close company owns over 50% shares

4. Yes, unless specified otherwise in the agreement

The correct answer is: No, if transferred by an individual to a related close company

In the context of the Business Asset Disposal Relief (BADR), goodwill is treated specially when it comes to the transfer of assets to close companies. Generally, an individual would not qualify for BADR on the transfer of goodwill to a close company if the transfer is made directly to a related party such as an individual’s close company. In simpler terms, while goodwill is typically considered a relevant business asset, its treatment under BADR differs depending on the relationship between the transferor and the company receiving the asset. In this case, transferring goodwill directly to a close company makes that transfer ineligible for BADR relief for the individual. This distinction is crucial in taxation and asset disposal strategies since individuals might expect relief on various assets when selling or transferring them, but specific rules apply when dealing with related parties. The general principle here is a safeguard against potential abuse of relief provisions where individuals transfer assets to their companies at potentially lower tax costs. The other options cannot be correct since they suggest scenarios where goodwill would be treated differently without regard to the key principle that transactions involving certain close company transfers do not qualify for BADR. Thus, the correct understanding relies on the specific limitation placed on goodwill transfers to close companies in the context of tax relief eligibility.