ACCA Advanced Taxation (ATX) Practice Exam

What is a specific advantage of EMI shares regarding capital gains qualifying for BADR?

1. No requirement to hold at least a 5% interest

2. Shareholders must hold for at least 3 years

3. The scheme applies only to newly issued shares

4. Only certain employees can qualify

The correct answer is: No requirement to hold at least a 5% interest

The advantage of EMI (Enterprise Management Incentives) shares regarding capital gains qualifying for Business Asset Disposal Relief (BADR) lies in the requirement associated with shareholding percentage. For shares to qualify for BADR, there is typically a minimum requirement of holding at least 5% of the ordinary share capital of the company. EMI shares, however, do not impose this 5% shareholding requirement. This is pivotal because it allows employees holding smaller amounts of shares to potentially benefit from reduced capital gains tax on the disposal of their shares, enhancing accessibility and incentivizing participation in share ownership among employees. In contrast, the other options reflect conditions that either do not apply or limit the opportunity for benefiting from BADR. For instance, the requirement to hold shares for at least three years is not specific to EMI shares, and the scheme's application to newly issued shares does not directly relate to capital gains eligibility. Additionally, while certain employees must meet conditions to benefit from EMI arrangements, this does not detract from the specific advantage of not requiring a 5% stake. Hence, this particular aspect of EMI shares provides a significant benefit in the context of BADR eligibility.