ACCA Advanced Taxation (ATX) Practice Exam

Under what condition does the two-year ownership requirement for BADR apply in a share-for-share exchange?

1. Exclusively for new shares

2. Included for the holding period of original shares

3. Only for shares held for less than a year

4. No period is taken into account

The correct answer is: Included for the holding period of original shares

The correct interpretation of the two-year ownership requirement for Business Asset Disposal Relief (BADR) in a share-for-share exchange is that it includes the holding period of the original shares. This means that when assessing eligibility for BADR, the time the shareholder has held the original shares can be combined with the time they have held the new shares received in the exchange. This provision ensures that the investor's longer-term commitment to the original shares is recognized, thus permitting a continuous ownership period for the purposes of claiming BADR. The rationale is to encourage investor stability and loyalty, acknowledging the investments made prior to the exchange. In contrast, the other options suggest limitations or exclusions that do not align with the actual rules surrounding BADR. For example, claiming it applies exclusively to new shares or not considering any period at all would neglect the combined holding periods that the legislation explicitly allows, which can ultimately hinder shareholders from qualifying for relief when they might otherwise be entitled to it.