ACCA Taxation (F6) Practice Exam

When do shares in a trading company qualify for business asset disposal relief?

1. If held for less than 12 months

2. If held for more than 2 years by a controlling shareholder

3. Only if the company ceases operations

4. If held by any investor regardless of duration

The correct answer is: If held for more than 2 years by a controlling shareholder

Shares in a trading company qualify for business asset disposal relief when they are held for more than 2 years by a controlling shareholder. This provision is designed to encourage long-term investment in businesses by providing tax relief on gains from the sale of such shares. The requirement for a holding period of more than 2 years ensures that the investor has a substantial commitment to the company, reflecting the risks and responsibilities associated with being a controlling shareholder. This alignment of interests between shareholders and businesses fosters stability and growth within the company, which is essential for the larger economy. In contrast, shares held for less than 12 months do not qualify for the relief, as there is insufficient time to establish a strong connection with the company's operation. Additionally, merely ceasing operations of a company does not trigger this relief if the holding conditions are not met. Lastly, allowing any investor to qualify regardless of the holding duration would defeat the purpose of encouraging long-term investment and would likely discourage commitment to the business.