ACCA Advanced Taxation (ATX) Practice Exam

What conditions must be met for Business Asset Disposal Relief (BADR) to apply to a gain on business premises?

1. The asset must be sold within two months of cessation of trade

2. The asset must have been used for at least five years before disposal

3. The business must have ceased trading within the last three years

4. The individual must be trading at the time of disposal

The correct answer is: The business must have ceased trading within the last three years

Business Asset Disposal Relief (BADR) is a tax relief that allows individuals to pay a reduced rate of Capital Gains Tax on the sale of qualifying business assets. For BADR to be applicable to a gain on business premises, specific conditions must be fulfilled based on the nature of the business and the timing of the disposal. The condition stating that the business must have ceased trading within the last three years is essential. This reflects the purpose of BADR, which is designed to support individuals who exit trading activities, ensuring they can retain some value from their business assets as they transition out of trading. By having this requirement, the legislation targets those who have genuinely completed their business operation and are liquidating assets associated with that trade, thus potentially qualifying for capital gains relief. The other conditions do not align with the primary focus of BADR. Selling an asset within two months of cessation of trade is very specific and does not capture the broader intent of the relief, which encompasses assets disposed of during a longer timeframe. The five-year use requirement primarily relates to the duration of ownership and is not a stipulated criterion for BADR applicability. Similarly, being actively trading at the time of disposal contradicts the fundamental premise of BADR, which is meant for those who have ceased