ACCA Advanced Taxation (ATX) Practice Exam

Which statement is true regarding EIS and SEIS shares in relation to business property relief under inheritance tax?

1. They qualify only if owned for less than 2 years

2. They qualify when owned for 1 year

3. They qualify when owned for 2 years or more

4. They never qualify for business property relief

The correct answer is: They qualify when owned for 2 years or more

EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) shares provide important benefits regarding business property relief under inheritance tax, specifically when held for a certain period. The correct choice asserts that these shares qualify for business property relief when they have been owned for 2 years or more. The significance of the 2-year holding period is that it aligns with the conditions set out in the inheritance tax legislation. For shares in qualifying companies, such as those under EIS and SEIS, holding the investment for the requisite period ensures that they are considered as part of the 'business property.' This means that upon the owner's death, the value of these shares can be exempt from inheritance tax, thereby offering a key tax planning advantage. In contrast, options suggesting shorter holding periods would not meet the criteria required for business property relief, as recent investments might not be seen as contributing to a viable business for the necessary duration. Therefore, it’s essential for taxpayers considering these options to understand the timeline associated with ownership to ensure their investments qualify for potential relief under inheritance tax.