Taxation (UK) · The computation of capital gains tax

Business Asset Disposal Relief and Investors' Relief

Updated 11 October 2026 · Fact-checked

Business asset disposal relief (BADR) and investors' relief cut the capital gains tax rate to 14% on qualifying gains. Each has its own £1,000,000 lifetime limit. Gains above the limit are taxed at the normal 18% or 24%. To solve a question, check the conditions, apply the limit, then tax each slice at its own rate.

Understand Business Asset Disposal Relief and Investors' Relief

Capital gains tax (CGT) normally applies at 18% or 24%. Two reliefs reduce the rate to 14% for gains that qualify. They do not reduce the gain. They only reduce the rate of tax on it.

Business asset disposal relief rewards people who sell a business they have run. It covers three kinds of disposal. The first is all or part of a business carried on as a sole trader or partner, owned for at least two years. The second is assets of a business that has ceased. The business must have been owned for at least two years up to cessation, the disposal must fall within three years after cessation, and the assets must have been used in the business at cessation. The third is shares in a personal trading company. The individual must be an officer or employee of the company. They must also hold at least 5% of the ordinary share capital and at least 5% of the voting rights in a trading company (or the holding company of a trading group). They must have met these conditions for at least two years before the disposal.

Investors' relief rewards outside investors. It applies to newly issued ordinary shares in an unlisted trading company. The investor must have subscribed for the shares and held them for at least three years. The investor must not be an officer or employee of the company. This is the key contrast with BADR: BADR is for people working in the business, and investors' relief is for those who only invest.

Each relief has a lifetime limit of £1,000,000 of qualifying gains. The limits are separate. The limit is cumulative over your lifetime, so gains already relieved in earlier years use it up. Once the limit is used, further gains are taxed at the normal rates.

The relief is a claim. In the exam, assume the taxpayer wants the lowest tax unless told otherwise.

Key rules to remember

Reduced rate: Qualifying gain (within lifetime limit) taxed at 14%; Same rate for BADR and investors' relief, from the ACCA tax rates and allowances.
Lifetime limit: BADR: £1,000,000; investors' relief: £1,000,000; Two separate limits. Deduct earlier relieved gains to find the limit remaining.
Gains above the limit: Excess taxed at 18% or 24% depending on the basic rate band remaining; The 14% gain uses the basic rate band (£37,700 less taxable income) first. Only any balance of the band is left for other gains at 18%. The rest of the other gains is taxed at 24%.
Normal CGT rates and annual exempt amount: 18% and 24%; annual exempt amount £3,000; Set the annual exempt amount against the gains taxed at the highest rate first.
BADR trading business: Owned for at least 2 years before disposal (or before cessation, if cessation was within 3 years); Applies to sole traders and partners.
BADR shares: Officer or employee, and at least 5% of ordinary shares and 5% of voting rights, for at least 2 years; The company must be a trading company, or the holding company of a trading group.
Investors' relief shares: New ordinary shares, unlisted trading company, subscribed for, held at least 3 years, investor not an officer or employee; Shares bought from another shareholder do not qualify.

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

Use this order for any computation or discussion question on these reliefs.

1Compute each chargeable gain in the normal way: proceeds less cost, with any other reliefs applied first.
2Decide which gains qualify for BADR or investors' relief. Check ownership period, role in the company, and the 5% tests or the three-year holding.
3Find the lifetime limit remaining: £1,000,000 less any qualifying gains already relieved.
4Split the qualifying gain: the part within the limit is taxed at 14%. Any excess is taxed at the normal rates.
5Deduct losses and the £3,000 annual exempt amount. Set the annual exempt amount against the gains taxed at the highest rate first.
6Work out the basic rate band remaining: £37,700 less taxable income. The 14% gain uses this band first. Only any balance left is available for the other gains at 18%. The rest of the other gains is taxed at 24%.
7Apply 14%, 18% and 24% to each slice and add the results. Show every working.

Quickest way: Three-slice method

When to use it: Use it for objective test questions and for Section C when a gain qualifies and you need the CGT payable.

Write the qualifying gain, then cap it at the limit remaining. The capped amount is the 14% slice.
Put all other gains in a separate slice and deduct the £3,000 annual exempt amount from the highest-rate slice first.
Find the basic rate band left: £37,700 less taxable income (nil if taxable income is higher). The 14% slice uses this band first. Any balance is available for the other gains at 18%, and the rest of the other gains is at 24%. If taxable income is already above £37,700, all the other gains are at 24%.
Multiply each slice by its rate and add up.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

Applying 14% to gains above the £1,000,000 lifetime limit.
Students forget the limit is cumulative over a lifetime, not per year.
Fix: Always ask whether earlier relieved gains exist. Tax only the remaining limit at 14% and the excess at 18% or 24%.
Giving BADR to a shareholder who is not an officer or employee.
The 5% holding is noticed but the working-role test is missed.
Fix: Tick all conditions: trading company, 5% of shares, 5% of votes, officer or employee, two years. If the person is a pure investor, consider investors' relief instead.
Allowing investors' relief on shares bought from another shareholder.
Students treat any unlisted shareholding held three years as qualifying.
Fix: Investors' relief needs newly issued shares that the investor subscribed for. Check how the shares were acquired.
Setting the annual exempt amount against the 14% gain first.
Students deduct it from the largest or first gain by habit.
Fix: Use it against gains taxed at the highest rate first, which gives the lowest total tax. If the 14% gain is the only gain, deduct it from that gain.
Using 18% or 24% on non-qualifying gains without checking the basic rate band.
Students forget that the 14% gain uses the band first, so less of it is left for the other gains.
Fix: Work out the band left after taxable income. Take the 14% gain out of it first. Tax any balance of the other gains at 18% and the rest at 24%. If no band is left, all other gains are at 24%.
Forgetting the two-year period when a business has ceased.
The three-year window after cessation is confused with the two-year ownership test.
Fix: Remember both: owned for two years before cessation, and the disposal falls within three years after cessation.

Worked examples

Example 1

Amara sells her sole trader business, which she has run for eight years, and makes a gain of £400,000 on qualifying business assets. She has no other gains and has not claimed BADR before. Compute the CGT payable.

Show the solution

The gain qualifies for BADR: sole trader, owned more than two years.
The lifetime limit remaining is £1,000,000, so the whole gain is within the limit.
The 14% rate applies to the qualifying gain whatever her basic rate band position, so her other income does not change the rate.
This is her only gain, so the annual exempt amount is set against it: £400,000 less £3,000 = £397,000.
Tax at 14%: £397,000 × 14% = £55,580.

Answer: CGT payable is £55,580.

Example 2

Raj has taxable income of £60,000. He previously claimed BADR on gains of £700,000. This year he sells shares in his personal trading company (he is a director holding 10% of the shares and votes, held for four years) for a qualifying gain of £500,000. He also makes a gain of £30,000 on an investment property. Compute the CGT payable.

Show the solution

The share gain qualifies for BADR: director, at least 5% of shares and votes, for more than two years.
Lifetime limit remaining: £1,000,000 less £700,000 = £300,000.
So £300,000 of the gain is taxed at 14%. The other £200,000 is taxed at the normal rate.
Taxable income of £60,000 exceeds £37,700, so no basic rate band remains. The £200,000 and the £30,000 property gain are taxed at 24%.
Deduct the annual exempt amount against the 24% gains: £200,000 + £30,000 = £230,000; less £3,000 = £227,000.
Tax at 14%: £300,000 × 14% = £42,000.
Tax at 24%: £227,000 × 24% = £54,480.
Total: £42,000 + £54,480 = £96,480.

Answer: CGT payable is £96,480.

Exam tips

In Section B, objective questions often test one condition only, such as the 5% holding or the three-year period. Read the scenario for the one fact that breaks the condition.
State the rate as 14% and the limit as £1,000,000. These figures are given in the tax rates and allowances in the exam, but you should know them.
In Section C, show the split between the 14% gain and the gain at normal rates as a separate working. Marks are given for the split even if later figures are wrong.
Always check how the shares were acquired and the person's role when choosing between BADR and investors' relief.
Place the annual exempt amount against the highest-rate gains first and say so. This is an easy mark.

Practice questions from The computation of capital gains tax

Business Asset Disposal Relief and Investors' Relief in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalBusiness Asset Disposal Relief and Investors' Relief

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

What is the BADR rate and lifetime limit for the exam?

The ACCA tax rates and allowances for this period give a 14% rate and a £1,000,000 lifetime limit for business asset disposal relief. The same rate and limit apply to investors' relief, with a separate limit for each.

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

BADR is for people who run or work in the business: sole traders, partners, and officers or employees with at least 5% of a personal trading company. Investors' relief is for outside investors who subscribed for new shares in an unlisted trading company and held them for at least three years. An officer or employee cannot claim investors' relief.

How do I calculate CGT with business asset disposal relief?

Compute the gain, cap the qualifying part at the lifetime limit remaining and tax that at 14%. Tax any excess and other gains at 18% or 24% after the annual exempt amount. Use the annual exempt amount against the highest-rate gains first.

Does the lifetime limit reset each tax year?

No. The £1,000,000 limit applies over your lifetime. Qualifying gains that were relieved in earlier years reduce the amount left for the current disposal.