Taxation (UK) · The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Business Asset Disposal Relief and Investors' Relief for ACCA Taxation

Updated 11 October 2026 · Fact-checked

Business asset disposal relief (BADR) and investors' relief (IR) tax qualifying gains at 14% instead of 18% or 24%. Each has a £1,000,000 lifetime limit. BADR suits owners and employees who sell a business or shares. IR suits outside investors in unlisted company shares. Check conditions, apply the limit, then tax any excess normally.

Understand Business Asset Disposal Relief and Investors' Relief

Normal capital gains tax (CGT) rates for individuals are 18% (lower rate) and 24% (higher rate). Business asset disposal relief and investors' relief let some gains be taxed at a flat 14% instead. Both are reliefs for individuals, not companies.

Business asset disposal relief (BADR) is aimed at people who run or work in a business. It applies to the disposal of all or part of a trading business that you carried on as a sole trader or partner. It also applies to assets that were used in a trading business you carried on, if the business has ceased and you dispose of the assets within three years after cessation. And it applies to shares in your personal trading company. Use the detailed qualifying conditions in the next paragraph.

Investors' relief (IR) is aimed at outside investors who are not involved in running the company. It applies to gains on disposal of newly issued ordinary shares in an unlisted trading company. The shares must be newly issued, subscribed for in cash by you, and in an unlisted company. You must hold them continuously for three years from the date they were issued. You must not be connected with the company. You must also not be an employee of it. You may be a director only if you are unpaid.

For BADR, the qualifying conditions must be met for at least two years. For a sole trader or partner, you must have owned the business for at least two years up to the date of disposal (or up to cessation, with disposal of the assets within three years after). For shares, the company must be your personal company. This means it is a trading company (or the holding company of a trading group) and you hold at least 5% of the ordinary share capital and at least 5% of the voting rights. You must also be an officer or employee of the company. These conditions must be met throughout the two years before disposal.

Both reliefs share the same mechanics. The qualifying gain is taxed at 14%, and the lifetime limit is £1,000,000 for each relief. Gains above the limit are taxed at the normal rates of 18% or 24%. The annual exempt amount of £3,000 is deducted from your gains, and you can choose which gains it is set against. It is best set against the gains that would otherwise bear the highest rate.

Key rules to remember

Rate on qualifying gains: BADR or IR gain × 14%; The same 14% rate applies to both reliefs, up to each relief's lifetime limit.
Lifetime limit: BADR £1,000,000; IR £1,000,000; Limits are separate for each relief and apply over your lifetime, not per year. Deduct earlier qualifying gains first.
Gains above the limit: Excess over £1,000,000 → 18% or 24%; Taxed at the normal CGT rates depending on how much of the basic rate band is left.
BADR ownership conditions (shares): Officer or employee + trading company + at least 5% ordinary shares and votes, all for 2 years; The two-year period ends on the disposal date.
BADR sole trader or partner: Business owned for at least 2 years before disposal or cessation; If the business has ceased, disposal of assets must be within 3 years of cessation.
Normal CGT rates and annual exempt amount: 18% lower rate; 24% higher rate; annual exempt amount £3,000; The rates are provided in the exam tax tables, so you need not memorise them.

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

Use the same sequence for any BADR or IR question, whether the exam asks for tax payable or for the best way to use the reliefs.

1Identify the asset sold: whole or part of a business, assets after cessation, or shares. Decide if BADR or IR could apply.
2Test the qualifying conditions: two-year period, officer or employee status, trading company, and 5% holdings for BADR; new shares, unlisted company and holding period for IR.
3Compute the chargeable gain on each asset in the normal way (proceeds less cost, with allowable expenses).
4Deduct available losses and decide how to use the annual exempt amount of £3,000 so it saves the most tax.
5Check the remaining lifetime limit of £1,000,000 after any earlier claims. Tax the qualifying gain at 14% up to that limit.
6Tax any excess gains at 18% or 24%, using what is left of the taxpayer's basic rate band after taxable income.
7Add up the CGT and state the due date or the claim deadline if asked.

Quickest way: Three-pass check for BADR and IR

When to use it: Use this in Section B or C when you have limited time and a single owner is selling a business or shares.

Pass one: write down the two or three qualifying conditions and tick each against the facts. If one fails, stop and use normal rates.
Pass two: compute gain and then 14% × the qualifying part, capped by the remaining £1,000,000.
Pass three: put the annual exempt amount against gains taxed at the highest rate and tax the rest. Check that your totals add up.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

Applying 14% to the whole gain even when it goes above £1,000,000.
Students remember the rate but forget the lifetime limit.
Fix: Always compare the qualifying gain with the remaining limit. Tax only the part within the limit at 14%.
Forgetting that earlier claims reduce the lifetime limit.
The limit is described as £1,000,000 so it looks like a yearly allowance.
Fix: Read the question for earlier disposals with relief. Subtract those gains before using the limit.
Claiming BADR when the shareholder holds less than 5% or is not an officer or employee.
Students focus on the two-year holding and ignore the other tests.
Fix: List every condition and check each one against the facts. Consider IR if the shares are new and the person is an outside investor.
Using the annual exempt amount against a gain taxed at 14% when higher-rate gains exist.
Students set the exemption off in the order the gains appear.
Fix: Set the £3,000 against the gains that would otherwise be taxed at 24%, then 18%, then 14%.
Treating shares in a non-trading or investment company as qualifying.
Students assume any company the person owns qualifies.
Fix: Look for the word trading in the question. An investment company or a company with substantial non-trading activity fails the test.
Mixing up the two reliefs and using the wrong holding period or status.
BADR and IR have the same rate and limit, so they look alike.
Fix: Remember BADR is for owners and employees; IR is for outside investors in new unlisted shares.

Worked examples

Example 1

Asha has run her own trading business as a sole trader for six years. She sells the whole business and makes a chargeable gain of £1,200,000 in total. She has made no previous BADR claims and has no other gains. Her taxable income exceeds the basic rate band. She sets her annual exempt amount against the gain taxed at 24%. Calculate her CGT.

Show the solution

The whole business has been owned for more than two years, so BADR is available.
The qualifying gain is £1,200,000. The lifetime limit is £1,000,000, so £1,000,000 qualifies for 14%.
The excess is £1,200,000 − £1,000,000 = £200,000. Her income uses the basic rate band, so the excess is taxed at 24%.
Set the annual exempt amount of £3,000 against the excess: £200,000 − £3,000 = £197,000.
CGT on the qualifying part: £1,000,000 × 14% = £140,000.
CGT on the excess: £197,000 × 24% = £47,280.
Total CGT: £140,000 + £47,280 = £187,280.

Answer: Asha's CGT is £187,280.

Example 2

Ben is a director who has worked for Tara Ltd, an unlisted trading company, for five years. He owns 10% of the ordinary shares and votes. He sells all his shares for a gain of £300,000. He used £400,000 of his BADR lifetime limit on an earlier disposal. His taxable income uses up his basic rate band. He has no losses and sets the annual exempt amount where it saves most tax. Calculate his CGT.

Show the solution

Ben is an officer or employee, holds at least 5% of shares and votes, and the company is a trading company. He has met these conditions for more than two years, so BADR applies.
Remaining limit: £1,000,000 − £400,000 = £600,000.
The gain of £300,000 is below £600,000, so all of it qualifies for 14%.
The annual exempt amount of £3,000 can be set against the gain: £300,000 − £3,000 = £297,000.
CGT: £297,000 × 14% = £41,580.

Answer: Ben's CGT is £41,580.

Exam tips

Read the facts for the two-year and 5% tests. Examiners often hide a failed condition in one sentence.
Look for earlier claims of relief. They reduce the £1,000,000 limit and change the answer.
Write the conditions as a short list in your Section C answer. Each point earns a mark.
In objective questions, work out if the shares are new and unlisted before picking investors' relief.
Show the 14% part and the normal-rate part on separate lines so you can pick up method marks.

Practice questions from The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

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 lifetime limit for business asset disposal relief?

The lifetime limit is £1,000,000 of qualifying gains. It applies across your whole life, so earlier claims use it up. Gains above the remaining limit are taxed at the normal CGT rates.

What is the difference between BADR and investors' relief?

BADR is for owners, partners and employees or officers who sell a business or their shares. Investors' relief is for outside investors who subscribe for new shares in an unlisted trading company. Both give a 14% rate and a £1,000,000 limit, but each has its own limit.

What rate of CGT applies to BADR and IR gains?

Qualifying gains within the lifetime limit are taxed at 14%. Any gain above the limit is taxed at 18% or 24%, depending on how much basic rate band is left.

How do I calculate BADR on a sale of company shares?

First check the conditions: officer or employee, trading company, at least 5% of shares and votes for two years. Then compute the gain, apply the remaining lifetime limit and tax the qualifying part at 14%.