Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of shares and securities

CGT Rates, Annual Exempt Amount and BADR on Shares

Updated 11 October 2026 · Fact-checked

An individual's gains on shares are taxed at 18% or 24%, after deducting the £3,000 annual exempt amount. Qualifying gains on a personal company's shares can instead be taxed at 14% under business asset disposal relief, up to a £1,000,000 lifetime limit. You find the gains, apply the BADR conditions, then fill the bands in the right order.

Understand CGT Rates, Annual Exempt Amount and Business Asset Disposal Relief

Capital gains tax (CGT) is charged on an individual's chargeable gains in a tax year. The gain is the proceeds less the cost, after any share matching. Once you have the total gains, you deduct current-year losses and then the annual exempt amount (AEA) of £3,000. What is left is the taxable gain.

The standard rates are a lower rate of 18% and a higher rate of 24%. How much is taxed at 18% depends on the individual's unused basic rate band. Taxable income is taxed first. Any basic rate band left over is available for gains. Gains above the band are taxed at 24%. The basic rate band figure comes from the tax tables in the exam.

Business asset disposal relief (BADR) lowers the rate on qualifying gains to 14%, which is the rate shown in the tax tables. It is not an exemption. It is a lower rate on gains up to a lifetime limit of £1,000,000 of qualifying gains. Gains above the limit are taxed at the normal rates.

For shares, the company must be the individual's personal company. Throughout the two years ending on the disposal date, the individual must hold at least 5% of the ordinary share capital and at least 5% of the voting rights. The company must be a trading company, or the holding company of a trading group. The individual must also be an officer or employee of the company, or of a group company, throughout the same two years. In the exam, test every condition and every date.

The order of tax matters. BADR gains are treated as using the basic rate band first. The AEA is set against the gains taxed at the highest rate first, so against 24% gains, then 18% gains, then BADR gains. This gives the lowest tax bill.

Key rules to remember

Taxable gains: Total gains − current-year losses − AEA (£3,000); The AEA is wasted if you do not use it. Current-year losses are set off in full, even if this wastes the AEA.
CGT rates: Lower rate 18%; higher rate 24%; The lower rate applies only to gains falling within any unused basic rate band after taxable income.
BADR rate: 14% on qualifying gains up to £1,000,000 lifetime; Take the rate and limit from the tax tables. Gains above the lifetime limit are taxed at 18% or 24%.
BADR personal company test (shares): ≥ 5% ordinary shares and ≥ 5% voting rights, trading company, officer or employee, all for 2 years before disposal; All conditions must be met throughout the whole two-year period.
Order of using bands and AEA: BADR gains use the basic rate band first; AEA is set against 24% gains first, then 18%, then 14%; This gives the lowest tax in the exam.
Remaining lifetime limit: £1,000,000 − BADR gains already claimed; Earlier claims reduce the amount of the limit available now.

How to solve CGT Rates, Annual Exempt Amount and Business Asset Disposal Relief questions

Use this order for any share disposal question involving rates, the AEA or BADR.

1Compute each gain: proceeds less allowable cost, after identifying the shares using the matching rules.
2Test BADR for each disposal: personal company, 5% of shares and votes, trading status, officer or employee, and the full two-year period.
3Check the lifetime limit. Deduct any BADR gains claimed before from £1,000,000 to find what is left.
4Deduct current-year losses, then set the £3,000 AEA against the gains taxed at the highest rate first.
5Work out the unused basic rate band: basic rate band less taxable income. BADR gains use it first.
6Apply 14% to BADR gains, then 18% to other gains in the remaining band, and 24% to the rest. Add up the tax.
7State your conclusions on BADR clearly, and give a reason for any condition that fails.

Quickest way: Rate-ladder method

When to use it: Use this when a question gives you taxable income and one or more gains and asks for the CGT liability.

Write three columns: 14%, 18% and 24%.
Put qualifying BADR gains (up to the remaining limit) in the 14% column. Put other gains in the 18% or 24% columns after working out the band left.
Cross off £3,000 of AEA from the 24% column first, then 18%, then 14%.
Multiply each column by its rate and add up.
Check that your three columns add back to total gains less the AEA and losses.

Common mistakes in CGT Rates, Annual Exempt Amount and Business Asset Disposal Relief

Treating BADR as an exemption or a reduction in the gain.
The name sounds like a relief that removes the gain.
Fix: BADR only changes the rate to 14% on qualifying gains. The gain stays in the computation.
Missing the two-year period or one of the 5% tests.
Students look at the percentage holding and forget voting rights, employment or timing.
Fix: Tick off each condition separately, with its dates, before you compute any tax.
Setting the AEA against the BADR gain first.
It feels natural to use it on the first gain listed.
Fix: Set the AEA against gains taxed at 24% first, then 18%, then 14%. This saves the most tax.
Giving a basic rate band to a BADR gain that is already taxed at 14%, or forgetting that BADR gains use the band first.
Students are unsure how the band interacts with the lower rate.
Fix: BADR gains use up the basic rate band first. Whatever band is left is then available for the 18% gains.
Ignoring earlier BADR claims when applying the £1,000,000 limit.
The question states them in a different part of the scenario.
Fix: Always find the remaining limit first. Gains above it are charged at 18% or 24%.
Wasting the AEA by setting brought-forward losses against gains first.
Students set off all losses without thinking about the AEA.
Fix: Current-year losses are set off in full first. Brought-forward losses are used only as far as needed to reduce gains to the AEA.

Worked examples

Example 1

Priya has taxable income of £47,430 for 2025/26 after her personal allowance. She sells shares in her personal trading company for a gain of £200,000. She has held 10% of the ordinary shares and votes for five years and has been a director throughout. She has never claimed BADR. She also sells quoted shares for a gain of £20,000. Compute her CGT, using a basic rate band of £37,700.

Show the solution

BADR test: personal company, 10% is at least 5% of shares and votes, trading company, officer for 5 years. All conditions are met, so the £200,000 gain qualifies. It is within the £1,000,000 limit.
Her taxable income of £47,430 is above £37,700, so no basic rate band is left. Her other gain is taxed at 24%.
Apply the AEA to the 24% gain first: £20,000 − £3,000 = £17,000.
Tax on the BADR gain: £200,000 × 14% = £28,000.
Tax on the other gain: £17,000 × 24% = £4,080.
Total: £28,000 + £4,080 = £32,080.

Answer: Priya's CGT liability is £32,080.

Example 2

Tom is a higher rate taxpayer with no basic rate band left in 2025/26. He has already claimed BADR on gains of £800,000 on an earlier business sale. He now sells shares in his personal trading company and makes a gain of £500,000 that meets all the BADR conditions. He has no other gains. Compute his CGT.

Show the solution

Remaining lifetime limit: £1,000,000 − £800,000 = £200,000.
£200,000 of the gain is taxed at 14%. The other £300,000 does not qualify, so it is taxed at 24%.
Apply the AEA to the 24% gain first: £300,000 − £3,000 = £297,000.
Tax at 14%: £200,000 × 14% = £28,000.
Tax at 24%: £297,000 × 24% = £71,280.
Total: £28,000 + £71,280 = £99,280.

Answer: Tom's CGT liability is £99,280.

Exam tips

List each BADR condition in your answer and mark it met or failed, using the dates in the scenario. Markers award a mark for each condition.
Always show the remaining lifetime limit as a separate line. Earlier claims are a common trap.
Show the unused basic rate band calculation clearly, even if it turns out to be nil. It earns method marks.
Take every rate and limit from the tax tables provided. Do not rely on memory for figures.
Where BADR fails, say why, then compute tax at 18% and 24% and, if useful, suggest what would let the relief apply in future.

Practice questions from Capital gains tax: gains and losses on the disposal of shares and securities

CGT Rates, Annual Exempt Amount and Business Asset Disposal 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

CGT Rates, Annual Exempt Amount and Business Asset Disposal Relief: frequently asked questions

What are the BADR conditions for shares in ATX?

The company must be the individual's personal company and a trading company or the holding company of a trading group. The individual must hold at least 5% of the ordinary shares and at least 5% of the voting rights, and must be an officer or employee. All of this must be true throughout the two years ending on the disposal date.

Does a 5% holding for less than two years qualify for BADR?

No. The conditions must be met throughout the two years before the disposal. A shorter holding period fails the test, so the gain is taxed at 18% or 24%.

How is the annual exempt amount used with BADR?

The £3,000 AEA is set against gains taxed at the highest rate first. So you use it against 24% gains, then 18% gains, and last against gains eligible for BADR at 14%.

What is the lifetime limit for BADR?

It is £1,000,000 of qualifying gains over the individual's lifetime. Earlier claims reduce what is left. Gains above the limit are taxed at the normal CGT rates.