Taxation (UK) · Gains and losses on the disposal of shares and securities

Business Asset Disposal Relief and Investors' Relief on Shares

Updated 11 October 2026

Business asset disposal relief (BADR) and investors' relief (IR) cut capital gains tax on qualifying share disposals to 14%, within a £1,000,000 lifetime limit for each relief. BADR is for officers or employees with a personal company. IR is for outside investors in unlisted trading companies. Gains above the limit are taxed at the normal rates.

Understand Business Asset Disposal Relief and Investors' Relief on Shares

Capital gains tax (CGT) on shares is normally charged at 18% or 24%. Two reliefs lower this to a flat 14% on qualifying gains. They reward people who run a business or who fund one.

Business asset disposal relief (BADR) is aimed at owner-managers. You must dispose of shares in your personal company and be an officer or employee of it (or of a company in its trading group). The company must be a trading company or the holding company of a trading group.

Investors' relief (IR) is aimed at outside investors. You subscribe for new shares in an unlisted trading company, and you are not an employee or officer (or you only become an officer later, in limited cases). You must hold the shares for the required period before disposal.

Each relief has its own lifetime limit of £1,000,000 of qualifying gains. Once you have used the limit, further gains get no relief and are taxed at the normal CGT rates. The 14% rate is the rate given in the ACCA tax tables for both reliefs.

The relief applies to the gain, not to the sale proceeds. You work out the gain first, deduct any capital losses and the annual exempt amount in the most beneficial way, then apply 14% to the qualifying gain.

Key rules to remember

Rate of tax under BADR or IR: Qualifying gain × 14%; The rate is given in the ACCA tax tables. It applies only up to the lifetime limit.
Lifetime limits: BADR: £1,000,000; IR: £1,000,000; Each relief has a separate limit. Deduct gains already relieved in earlier disposals.
BADR conditions for shares (held for at least 2 years): Personal company + officer or employee + trading company or holding company of a trading group; Personal company means you hold at least 5% of the ordinary share capital and at least 5% of the voting rights. All conditions must be met throughout the 2 years before disposal. Check the 2-year period carefully.
Investors' relief conditions for shares: New shares subscribed for + unlisted trading company + held continuously for at least 3 years + holder not an employee or officer; The shares must be newly subscribed for and held continuously for at least 3 years. Shares bought from another shareholder do not qualify.
Normal CGT rates for the balance: 18% (basic rate band remaining) and 24% (above it); Other gains are taxed first and use the basic rate band left after taxable income: 18% within the band and 24% above it. Gains qualifying for BADR or IR are taxed last at 14%, using any basic rate band left over. The 14% rate applies whatever band the gain falls in.
Annual exempt amount: £3,000; Deduct it from the gain. It is best set against gains taxed at the highest rate. If the only gains are BADR or IR gains, it reduces the gain taxed at 14%.

How to solve Business Asset Disposal Relief and Investors' Relief on Shares questions

Use this method for any question asking about BADR or IR on shares. Check the conditions before you calculate anything.

1Identify the disposal, the company and the person. Decide whether the person is an officer or employee or an outside investor.
2Test the BADR conditions: personal company (at least 5% of ordinary shares and voting rights), trading company or holding company of a trading group, officer or employee, all for the 2 years before disposal.
3If BADR fails, test IR: new shares subscribed for, unlisted trading company, held at least 3 years, not an employee.
4Compute the gain: proceeds less cost (using the matching rules or the s104 pool) to give the gain.
5Deduct current-year capital losses. Then deduct the annual exempt amount, normally against gains that would otherwise be taxed at the highest rate.
6Check the lifetime limit. Only gains within the remaining £1,000,000 qualify for 14%.
7Compute tax: tax any other gains first at 18% or 24% using the basic rate band left after taxable income, then tax the qualifying gain last at 14%.
8State the conclusion in a sentence, including the relief claimed and any limit used.

Quickest way: Three-question screening test

When to use it: Use this in objective test questions where you need to pick the relief or tax quickly.

Is the person an officer or employee with at least 5% of ordinary shares and voting rights for 2 years? If yes, think BADR.
If not, did they subscribe for new shares in an unlisted trading company and hold them for 3 years? If yes, think IR.
If neither applies, there is no relief. Apply 18% or 24%. If a relief applies, use 14% up to the £1,000,000 limit and normal rates above it.

Common mistakes in Business Asset Disposal Relief and Investors' Relief on Shares

Applying 14% to the whole gain even when the lifetime limit has been exceeded.
Students forget that earlier relieved gains use up the limit.
Fix: Always write down the remaining limit first: £1,000,000 less earlier qualifying gains.
Treating BADR and IR as sharing one £1,000,000 limit.
Both limits are the same amount, so they look like a single allowance.
Fix: Remember the tax tables list two limits. Each relief has its own £1,000,000.
Giving IR to a shareholder who bought shares from another investor.
Students focus on the 3-year holding and the unlisted company.
Fix: IR needs shares newly subscribed for. Purchased shares do not qualify.
Giving BADR to a shareholder who is not an officer or employee.
Students see a 5% holding and stop checking.
Fix: Check all the conditions: officer or employee, trading company, and 5% of ordinary shares and votes, for the full 2 years.
Deducting the annual exempt amount from the wrong gain.
Students deduct it automatically from the first gain they see.
Fix: Use it against the gain taxed at the highest rate first, then check the effect on the relieved gain.
Taxing the BADR or IR gain first and letting it use the basic rate band.
Students assume the relieved gain comes first because it has the lowest rate.
Fix: Tax other gains first, using the basic rate band left after taxable income at 18% and the rest at 24%. Tax the gain qualifying for BADR or IR last at 14%, whatever band is left over.

Worked examples

Example 1

Priya has been a director and employee of Zed Ltd, an unlisted trading company, for six years. She owns 20% of the ordinary shares with 20% of the votes. In December 2025 she sold all her shares for £600,000. She bought them for £100,000. She has no other gains, no earlier claims for BADR and her income is above the higher rate threshold. Calculate her CGT.

Show the solution

Check conditions: Priya is an officer and employee, holds more than 5% of shares and votes, and Zed Ltd is a trading company. All conditions have been met for more than 2 years, so BADR applies.
Gain: £600,000 less £100,000 = £500,000.
Annual exempt amount: she has no other gains, so the £3,000 is deducted from the BADR gain, leaving a taxable gain of £497,000.
The gain qualifying for relief is £497,000. This is under the £1,000,000 limit, so all of it is taxed at 14%.
Tax: £497,000 × 14% = £69,580.

Answer: Priya's CGT is £69,580. The gain qualifying for relief is £497,000, so £497,000 of her BADR limit is used and £503,000 remains. Without relief the tax would have been at 24%.

Example 2

Tom is an outside investor. In May 2021 he subscribed for new shares in Alpha Ltd, an unlisted trading company, for £50,000. He has never been an employee or officer. In October 2025 he sold them for £250,000. He has no other gains and is an additional rate taxpayer. Explain whether a relief applies and calculate the CGT.

Show the solution

BADR does not apply because Tom is not an officer or employee.
IR conditions: the shares were newly subscribed for, Alpha Ltd is an unlisted trading company, Tom held them continuously for more than 3 years (May 2021 to October 2025), and he is not an employee or officer. IR applies.
Gain: £250,000 less £50,000 = £200,000.
Deduct annual exempt amount of £3,000: taxable gain £197,000.
The gain is within the £1,000,000 IR limit, so all of it is taxed at 14%.
Tax: £197,000 × 14% = £27,580.

Answer: Investors' relief applies. Tom's CGT is £27,580.

Exam tips

Read the scenario for the key facts: officer or employee, percentage held, trading or non-trading company, listed or unlisted, and the dates.
Always state which conditions are met. In constructed response answers, marks are often given for identifying the relief and the 14% rate.
Check the lifetime limit in every question. If earlier claims are given, deduct them before applying 14%.
In objective test questions, watch for one failed condition such as a holding period just under the required time.
Show the annual exempt amount deduction clearly as a separate line.

Practice questions from Gains and losses on the disposal of shares and securities

Business Asset Disposal Relief and Investors' Relief on Shares: frequently asked questions

What is the difference between business asset disposal relief and investors' relief?

BADR is for officers or employees who dispose of shares in their personal trading company. IR is for outside investors who subscribed for new shares in an unlisted trading company. Both give a 14% rate and each has a £1,000,000 lifetime limit.

What rate of CGT applies under BADR on a share disposal?

The rate is 14% on qualifying gains up to the lifetime limit of £1,000,000. Gains above the limit are taxed at the normal rates of 18% or 24%.

Do I need to hold the shares for a minimum period?

Yes. For BADR the conditions must be met for 2 years before disposal. For IR the shares must be held for at least 3 years, as set out in the notes above.

Can I use both BADR and investors' relief?

Yes, if you meet the conditions of each on different disposals. Each relief has its own £1,000,000 lifetime limit, so using one does not reduce the other.