Advanced Taxation (UK) · Capital gains tax and trusts

Business Asset Disposal Relief and Investors' Relief

Updated 11 October 2026 · Fact-checked

Business asset disposal relief and investors' relief cut the CGT rate on qualifying gains to 14%. Each has a £1,000,000 lifetime limit. Business asset disposal relief covers disposals of a trading business or shares in your trading company. Investors' relief covers newly subscribed unlisted shares held three years. Gains above the limit are taxed at 18% or 24%.

Understand Business Asset Disposal Relief and Investors' Relief

Normal CGT rates for individuals are 18% and 24%. Two reliefs give a lower rate on certain gains. Both are claimed, they are not automatic, and both have a lifetime limit.

Business asset disposal relief (BADR) rewards people who sell their business. It applies to three main types of disposal: all or part of a trading business you run as a sole trader or partner; business assets sold after the business ceases (the disposal must be within three years of cessation); and shares or securities in your personal trading company. For the first two, you must have owned the business for at least two years up to the disposal or cessation. For shares, the conditions must be met throughout the two years up to the disposal.

For the shares, a personal company means you hold at least 5% of the ordinary share capital and at least 5% of the voting rights, with the matching entitlement to profits and assets (or sale proceeds). You must also be an officer or employee of the company. The company must be a trading company, or the holding company of a trading group. Selling one machine or one building on its own, while the business carries on, does not qualify.

Investors' relief (IR) is for outside investors, not people running the company. It applies to shares in an unlisted trading company (or the holding company of a trading group) that you subscribed for in new shares, for cash. You must hold them for three years from the date of issue before you sell. In general you must not be an employee or an officer of the company. Shares traded on AIM count as unlisted.

The tax tables give the same figures for both reliefs: a lifetime limit of £1,000,000 each, and a rate of 14%. The limits are separate. Gains above the limit are taxed at the normal 18% or 24%. Unless the question says otherwise, assume the 2025/26 rates and allowances continue to apply.

Key rules to remember

Reduced rate on qualifying gains: BADR or IR gain up to the remaining limit × 14%; Rate and limits are in the CGT table of the tax tables ACCA gives you. Use the rate the question gives if it differs.
Lifetime limit: Remaining limit = £1,000,000 − gains on which relief was claimed earlier; BADR and investors' relief each have their own £1,000,000 limit. They are not shared.
Excess over the limit: Qualifying gain − remaining limit = gain taxed at 18% or 24%; Use 24% if the individual's taxable income already fills the basic rate band, or if the excess goes beyond the unused basic rate band.
Annual exempt amount: Annual exempt amount = £3,000; Set it against the gains taxed at the highest rate first, since that saves the most tax.
BADR holding period: At least 2 years of ownership before disposal or cessation; For a ceased business, the assets must be sold within 3 years of cessation.
Personal company test: ≥ 5% ordinary shares and ≥ 5% voting rights, plus officer or employee; The 5% holdings also need the matching entitlement to profits and assets (or sale proceeds). Test throughout the two years before disposal.
Investors' relief holding period: New shares for cash, unlisted company, held 3 years from issue; Shares must be newly subscribed. Bought-from-another-shareholder shares do not qualify.

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

Use the same order every time. It stops you claiming relief you are not entitled to and keeps the limit calculation tidy.

1Identify what is being disposed of: a business or part of one, assets after cessation, shares in a personal company, or newly issued shares held by an investor.
2Test the conditions for the relevant relief: the ownership period, trading status, the 5% tests and officer or employee status for BADR, or new shares, cash subscription and three years for investors' relief.
3Compute the gain on each asset as normal: proceeds less cost, and deduct any other allowable items. Separate the qualifying gains from non-qualifying ones, such as investment assets.
4Check the lifetime limit: deduct any earlier gains on which relief was claimed from £1,000,000 to find the remaining limit.
5Apply the annual exempt amount of £3,000 to the gains taxed at the highest rate first.
6Tax the qualifying gains up to the limit at 14%. Tax the excess and any non-qualifying gains at 18% or 24%, depending on the unused basic rate band after taxable income.
7State the claim date and when the tax is due, if asked, and note any planning point such as using the limit or timing a disposal.

Quickest way: Four-line relief check

When to use it: Use this when time is short and you need the tax figure and the conditions with minimal writing.

Write the disposal type next to the relief name and tick or cross each condition against the facts in the scenario.
Write the remaining limit: £1,000,000 minus earlier claims.
Split the gain into 'at 14%' and 'excess at 24% (or 18%)' and deduct £3,000 from the excess first.
Multiply, add, and write one sentence on the claim, so the marker sees you know it is not automatic.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

Treating a sale of a single business asset as qualifying for BADR while the business continues.
Students see 'business asset' in the name of the relief and assume any business asset qualifies.
Fix: Check the type of disposal. It must be the whole or part of a business, assets after cessation, or qualifying shares. A lone asset sold while the business continues does not qualify.
Missing the 5% shareholding, officer or employee test, or the two-year period for shares.
Students focus on the trading status of the company and forget the investor's own position.
Fix: Tick every limb: 5% of ordinary shares, 5% of votes, officer or employee, and trading company, all throughout the two years before the sale.
Applying the £1,000,000 limit to BADR and investors' relief combined.
Both limits are the same figure, so they get merged.
Fix: Treat them as two separate limits. Track the used and remaining amounts for each relief separately.
Forgetting earlier BADR claims when finding the remaining limit.
The earlier disposal is mentioned in a different paragraph of the scenario.
Fix: Underline any earlier claims when you read the question and deduct them from £1,000,000 before taxing anything at 14%.
Using investors' relief on shares that were bought from another shareholder or held for under three years.
Students remember 'unlisted trading company' but forget the new shares for cash condition.
Fix: Check that the shares were newly issued to the investor for cash and that the three years run from the date of issue.
Setting the annual exempt amount against the 14% gain.
It looks natural to reduce the first figure.
Fix: Set the £3,000 against the gains taxed at the highest rate first. This saves the most tax and is the approach examiners expect.

Worked examples

Example 1

Maya has run a sole trade for six years. She sells the whole business in 2025/26. The gains are: goodwill £400,000 and premises used in the trade £350,000. She has made no earlier BADR claims and has no other gains. State whether BADR is available and compute her CGT.

Show the solution

The disposal is of the whole of a trading business run as a sole trader for six years, which is more than the two-year minimum, so BADR is available if Maya claims it.
Total qualifying gains = £400,000 + £350,000 = £750,000.
Remaining lifetime limit = £1,000,000, as there are no earlier claims. The whole gain is below the limit.
Deduct the annual exempt amount: £750,000 − £3,000 = £747,000.
CGT = £747,000 × 14% = £104,580.

Answer: BADR is available on a claim. CGT payable is £104,580.

Example 2

Raj has been a director for six years and holds 10% of the ordinary shares and votes in Kestrel Ltd, an unlisted trading company. In 2025/26 he sells all his shares and makes a gain of £1,150,000. He claimed BADR of £200,000 on an earlier disposal. His taxable income exceeds the basic rate band. Compute his CGT.

Show the solution

Raj holds at least 5% of shares and votes, is an officer or employee, and the company is a trading company. Assuming the conditions are met for two years, BADR is available.
Remaining limit = £1,000,000 − £200,000 = £800,000.
Gain taxed at 14% = £800,000. CGT = £800,000 × 14% = £112,000.
Excess gain = £1,150,000 − £800,000 = £350,000, taxed at 24% since his taxable income exceeds the basic rate band.
Set the annual exempt amount against the 24% gain: £350,000 − £3,000 = £347,000. CGT = £347,000 × 24% = £83,280.
Total CGT = £112,000 + £83,280 = £195,280.

Answer: Total CGT is £195,280, made up of £112,000 at 14% and £83,280 at 24%.

Exam tips

Write the conditions as a short checklist and tick each one against the scenario. The marks are for applying each test to the facts, not for reciting them.
Scan the question for earlier relief claims and for the dates showing the holding period. Both are common traps.
State clearly that BADR and investors' relief must be claimed, and note that you are assuming the claim is made.
Use the rate and limits from the tax tables, and quote the rate the question gives if it differs. Show the 14% and the 24% (or 18%) workings separately.
If the question asks for advice, comment on how timing a sale, or splitting disposals across tax years, could use the limit and annual exempt amount better.

Practice questions from Capital gains tax and trusts

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 Applied SkillsBusiness Asset Disposal Relief and Investors' Relief

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

What is the difference between BADR and investors' relief?

BADR is for people who run a business, as owners, partners or officer or employee shareholders holding at least 5%. Investors' relief is for outside investors in newly issued unlisted company shares held for three years. Both give a 14% rate and each has its own £1,000,000 lifetime limit.

What is the BADR lifetime limit and rate for ATX-UK?

The tax tables show a lifetime limit of £1,000,000 and a rate of 14%. Assume these apply unless the question gives different figures. Gains above the limit are taxed at 18% or 24%.

Do I have to claim business asset disposal relief?

Yes. The relief is not automatic. In the exam, state that a claim is assumed and apply 14% to the qualifying gain. Claims have a deadline, which is one year after the 31 January following the end of the tax year of disposal.

Can I get investors' relief if I am a director of the company?

In general no. You must not be an employee or an officer of the company, with limited exceptions. If you are a director with a 5% holding, check whether BADR is the relevant relief instead.