ACCA Advanced Taxation (ATX) Practice Exam

What must an employee do to qualify for Business Asset Disposal Relief (BADR) regarding shareholdings?

1. Hold shares for less than one year

2. Own shares for at least two years

3. Be an employee for at least five years

4. Create and run the business for two years

The correct answer is: Own shares for at least two years

To qualify for Business Asset Disposal Relief (BADR), an employee must own shares for at least two years. BADR is designed to provide certain tax reliefs to individuals disposing of their business assets, and one of the key eligibility criteria is the duration of share ownership. The requirement to hold shares for a minimum of two years ensures that shareholders are genuinely invested in the business for a substantial period of time, aligning with the principles of supporting long-term involvement in the enterprise. This time frame is designed to prevent short-term speculative investments from benefiting from favorable tax treatment that is intended for committed business owners and investors. Meeting this two-year threshold is crucial for claiming the relief on capital gains that arise from the disposal of shares in a qualifying business. This idea supports the policy goal of encouraging investment and stability within businesses, as longer-term stakeholders are more likely to contribute to the success and sustainability of the company.