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Advanced Taxation (UK) · Capital gains tax: the basic principles of computing gains and losses

Business Asset Disposal Relief and Investors' Relief

Updated 11 October 2026 · Fact-checked

Business asset disposal relief (BADR) and investors' relief (IR) tax qualifying gains at a reduced rate, 14% in the ATX-UK tax tables, instead of 18% or 24%. Each has its own £1,000,000 lifetime limit. BADR covers trading business owners. IR covers outside investors in new unlisted company shares. Gains above the limit are taxed at normal rates.

Understand Business Asset Disposal Relief and Investors' Relief

Normal capital gains tax (CGT) on individuals is charged at 18% or 24%, depending on how much of the basic rate band is left. BADR and investors' relief cut that rate for gains on certain business disposals. The tax tables give the reduced rate as 14% for both reliefs. That is the rate in the ATX-UK tax tables for this exam period. Always use the rate in the tables supplied in your exam.

Business asset disposal relief rewards people who run a business. It applies to a disposal of all or part of a trading business carried on as a sole trader or partner. It also applies to shares in your personal trading company. For shares, you must be an officer or employee, and you must hold at least 5% of the ordinary share capital and 5% of the voting rights. You must also meet a further economic-interest test. You must be entitled to at least 5% of the profits available for distribution and at least 5% of the assets available on a winding up. Alternatively, you must be entitled to at least 5% of the proceeds if the company is sold. The conditions must be met throughout the 2 years ending on the disposal date. If the business or company ceases, the 2 years end on the cessation date. The disposal must then follow within 3 years of that date.

Investors' relief rewards outside investors. It applies to newly issued ordinary shares in an unlisted trading company, or the holding company of a trading group. You must have subscribed for them for cash. The shares must be unlisted when issued and throughout the holding period. You must hold them for 3 years. You must not be an employee or officer of the company or a connected company. There is no 5% holding test.

The tax tables do not cover the points below. They are technical rules from your study text, so check them there:

  • The shares must have been issued on or after 17 March 2016. The 3-year holding period must start on or after 6 April 2016 and end on or after 6 April 2019.
  • Unlisted means not listed on a recognised stock exchange. AIM is not a recognised stock exchange for this purpose, so AIM shares are treated as unlisted and can qualify.

Lifetime limits: the limit is £1,000,000 of qualifying gains for BADR and a separate £1,000,000 for investors' relief. Using one does not use up the other. The limit is cumulative across all your disposals, so earlier claims reduce what is left. Gains above the limit are taxed at 18% or 24% in the normal way.

Both reliefs are claimed by the individual, not given automatically. The qualifying gains are taxed first and use up the basic rate band. That can push your other gains into the 24% rate. The annual exempt amount of £3,000 is best set against gains taxed at the highest rate.

Key rules to remember

Reduced rate on qualifying gains
Qualifying gain (within lifetime limit) × 14%
14% is the rate in the ATX-UK tax tables for this exam period. Use the rate in the tables supplied in your exam. The same rate is shown for BADR and investors' relief.
BADR lifetime limit
Limit = £1,000,000 of qualifying gains
Cumulative over your lifetime. Deduct all earlier BADR gains to find the limit left.
Investors' relief lifetime limit
Limit = £1,000,000 of qualifying gains
Separate from the BADR limit. Deduct earlier investors' relief gains only.
Gains above the limit
Excess gain × 18% or 24%
The rate depends on the basic rate band left after taxable income and the qualifying gains.
Annual exempt amount
AEA = £3,000
Set it against gains taxed at the highest rate first, to save the most tax.
BADR shares test
Officer or employee + at least 5% ordinary shares + at least 5% votes + 5% economic interest, for 2 years
Trading company, personal company. The economic-interest test means at least 5% of profits available for distribution and 5% of assets on a winding up, or 5% of the proceeds on a sale. After cessation, disposal must be within 3 years.
Investors' relief shares test
New ordinary shares + cash subscription + unlisted trading company + 3-year holding + not employee or officer
The date conditions are not in the tax tables, so check them in your study text. Shares issued on or after 17 March 2016, with the 3-year holding period starting on or after 6 April 2016 and ending on or after 6 April 2019. AIM shares are treated as unlisted.

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

Use this order for any BADR or investors' relief question. Test the conditions before you touch the numbers.

  1. 1Identify the type of disposal: a business or part of it, shares in the taxpayer's own company, or newly issued shares held as an investment.
  2. 2Check the conditions and holding period. For BADR, test the 2-year period and the 5% holdings, and check the role as officer or employee. For investors' relief, test new shares, cash subscription, unlisted status, the 3-year holding and no employment.
  3. 3Compute each gain in the normal way: proceeds less cost and allowable expenses. Then split gains into qualifying and non-qualifying.
  4. 4Check the lifetime limit. Deduct earlier claims from £1,000,000. Only gains up to the remaining limit get the reduced rate.
  5. 5Work out the basic rate band left. Subtract taxable income, then qualifying gains, which are taxed first. Use what is left for other gains.
  6. 6Apply the £3,000 annual exempt amount to the gains taxed at the highest rate first.
  7. 7Tax the qualifying gains at 14% using the tax table. Tax other gains at 18% or 24% according to the band left, then add up the total.
  8. 8State any claim point and the due date if the question asks, and explain why a relief does or does not apply.

Quickest way: Condition check, then rate slices

When to use it: Use this in Section A or B when the question gives a lot of facts and you have little time.

  1. Underline the dates, the percentage holdings and the roles in the scenario, and tick each condition.
  2. Write the amount of lifetime limit left in the margin: £1,000,000 less earlier gains.
  3. Split the total gain into three lines: qualifying within the limit, qualifying above the limit, and other gains.
  4. Work out the basic rate band left. Put the AEA against the 24% slice. Multiply each slice by its rate and add up.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

  • Applying the 5% test to investors' relief

    Students mix up the two reliefs because both give the same reduced rate.

    Fix: Investors' relief has no 5% test. It needs new shares, cash subscription, 3 years' holding and no employment or office.

  • Treating the £1,000,000 limit as one shared limit

    Both limits are the same amount in the tax tables, so they look like one pot.

    Fix: Keep two limits. A BADR claim does not reduce what is left for investors' relief, and the reverse also applies.

  • Ignoring earlier BADR claims

    Students assume the full £1,000,000 is available on every disposal.

    Fix: Deduct all earlier qualifying gains first. Only the remainder gets the reduced rate.

  • Setting the annual exempt amount against the 14% gain

    Students deduct it from the first gain listed.

    Fix: Set the £3,000 against gains taxed at 24%, then 18%, and use it against 14% gains last. That gives the lowest tax.

  • Taxing other gains in the basic rate band without allowing for the qualifying gains

    Students forget that qualifying gains are taxed first and use the basic rate band.

    Fix: Deduct taxable income and then the qualifying gains from the band before you test the 18% and 24% rates.

  • Failing the 2-year or 3-year time test without noticing

    Students read the dates too fast in the scenario.

    Fix: Count from the date the conditions were first met to the disposal date, or the cessation date. Remember the post-cessation disposal must be within 3 years.

Worked examples

Example 1

Sam sold his sole trade business in 2025/26 and made a gain of £250,000 that qualifies for BADR. He has made no earlier BADR claims. He also sold quoted shares at a gain of £20,000. His taxable income is £50,000. Compute his CGT liability using the rates in the tax tables.

Show the solution
  1. Rate: use 14%, the BADR rate given in the ATX-UK tax tables for this exam period. In the exam, use the rate in the tables supplied.
  2. Test the lifetime limit. £250,000 is below £1,000,000, so all of it qualifies for 14%.
  3. Basic rate band: £37,700 is fully used by taxable income of £50,000. None is left, so the share gain is taxed at 24%.
  4. AEA: set £3,000 against the £20,000 share gain, which is taxed at the highest rate. Taxable share gain = £17,000.
  5. BADR tax: £250,000 × 14% = £35,000.
  6. Share gain tax: £17,000 × 24% = £4,080.
  7. Total CGT: £35,000 + £4,080 = £39,080.

Answer: Sam's CGT is £39,080.

Example 2

Priya subscribed for new ordinary shares in Oak Ltd, an unlisted trading company, for £200,000 cash in 2019. She has never been an employee or officer. She sold the shares in 2025/26 for £1,350,000. She has never claimed investors' relief and is a higher rate taxpayer. Compute her CGT using the tax table rates.

Show the solution
  1. Rate: use 14%, the investors' relief rate given in the ATX-UK tax tables for this exam period. In the exam, use the rate in the tables supplied.
  2. Check the conditions: new ordinary shares, cash subscription, unlisted trading company, held more than 3 years, no employment or office. The shares were issued in 2019 and held for over 3 years, so they meet the date conditions in your study text (these are not in the tax tables). Investors' relief applies.
  3. Gain: £1,350,000 − £200,000 = £1,150,000.
  4. Lifetime limit: £1,000,000 of the gain qualifies for the reduced rate. Excess: £150,000.
  5. Qualifying gain tax: £1,000,000 × 14% = £140,000.
  6. AEA: set £3,000 against the excess, which is taxed at 24%. Taxable excess = £147,000.
  7. Excess tax: £147,000 × 24% = £35,280.
  8. Total CGT: £140,000 + £35,280 = £175,280.

Answer: Priya's CGT is £175,280.

Exam tips

  • Write the conditions as a short list and tick each against the facts. Markers award marks for the conditions even when the gain is simple.
  • Always state which relief applies by name and why. Do not just apply 14% without justification.
  • Read the dates carefully. A 2-year or 3-year test is often failed by a few months.
  • Take the rates and the £1,000,000 limit from the tax tables. Do not rely on memory for the rates.
  • In a planning question, comment on the effect of delaying a sale or on the claim, and tie it to the client's facts to earn professional skills marks.

Practice questions from Capital gains tax: the basic principles of computing gains and losses

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.

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

What is the lifetime limit for business asset disposal relief in ATX-UK?

The tax tables give a lifetime limit of £1,000,000 for BADR. It is cumulative over your lifetime, so deduct earlier qualifying gains first. Gains above the limit are taxed at 18% or 24%.

What is the difference between BADR and investors' relief?

BADR is for people involved in the business: sole traders, partners, or officers and employees with at least 5% of their trading company. Investors' relief is for outside investors in new unlisted company shares held for 3 years who are not employees or officers. Each has its own £1,000,000 limit and the same reduced rate in the tax tables.

Can I claim both BADR and investors' relief?

Yes, but only on different disposals that each meet their own conditions. The limits are separate, so using one does not reduce the other. Compute each relief against its own limit.

Does the annual exempt amount reduce the BADR gain?

You may set it against any gain, but it saves most when set against gains taxed at 24%. Use it on 14% gains last. The annual exempt amount is £3,000.