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Advanced Taxation (UK) · Capital gains tax: the scope of the taxation of capital gains

Business Asset Disposal Relief and Investors' Relief Explained

Updated 11 October 2026 · Fact-checked

Business asset disposal relief (BADR) and investors' relief (IR) cut the CGT rate on qualifying gains to 14%, up to a £1,000,000 lifetime limit each. BADR suits owners who work in the business. IR suits outside investors in unlisted trading company shares. Check conditions, apply the limit, then tax any excess at 18% or 24%.

Understand Business Asset Disposal Relief and Investors' Relief

Normal CGT rates for individuals are 18% for gains within the basic rate band and 24% above it. Two reliefs lower the rate on qualifying gains to 14%, as shown in the tax tables ACCA provides. They are business asset disposal relief (BADR) and investors' relief (IR).

BADR rewards people who run or work in a business. IR rewards outside investors who put money into unlisted trading companies. Each relief has its own lifetime limit of £1,000,000 of qualifying gains. The limits are separate, so one person can use both. The limit is cumulative over a lifetime, not per year. Gains already relieved in earlier disposals use up the limit.

BADR is available on disposal of a business (or part of one) by a sole trader or partner, on assets used in the business after it ceases, and on shares or securities in a personal company. IR applies only to new ordinary shares in an unlisted trading company, subscribed for in cash, and held for the required period. The investor must not be an employee or officer connected with the company at the relevant time.

The qualifying conditions for each relief are tested over a period before disposal. For BADR the usual period is two years. For IR the shares must have been held for a minimum period starting from a specified date. Learn these periods from your study material, because they are not in the tax tables. The tables give only the rate and the limit.

The relief is an election, so the taxpayer claims it. Taxable income uses the basic rate band first. Qualifying gains are then taxed at 14% and use up any band that remains. Other gains are taxed at 18% up to the limit of the band and at 24% above it. You do not choose how the band is allocated.

The annual exempt amount of £3,000 is set against gains in the way that saves the most tax: gains taxed at 24% first, then 18%, then 14%. If the only gains are qualifying gains, there is nothing else to set it against, so it has to be set against them.

Key rules to remember

BADR and IR rate
Qualifying gain taxed at 14%
Applies to both reliefs, within the lifetime limit.
Lifetime limits
BADR: £1,000,000; IR: £1,000,000
Separate limits. Cumulative over lifetime, so deduct gains relieved before.
Gain above limit
Excess gain taxed at 18% or 24%
Rate depends on how much of the basic rate band (£37,700) is unused after taxable income and qualifying gains.
Annual exempt amount
£3,000
Set against gains taxed at the highest rate first (24%, then 18%, then 14%). If the only gains are qualifying gains, it is set against them.
Basic rate band
£37,700
Taxable income uses it first. Gains qualifying for BADR/IR are then taxed at 14% and use up any band left. Other gains are taxed at 18% within the remaining band and at 24% above it.
Relief claim
Election by taxpayer
BADR and IR are not automatic. State the need to claim in your answer.

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

Use this order for any question on BADR or IR. It keeps conditions, limits and rates separate.

  1. 1Identify the disposal: business, business assets after cessation, or shares. Decide whether BADR or IR could apply.
  2. 2Test the conditions for the relevant relief, including the qualifying period and the person's role in the business or company. State pass or fail for each.
  3. 3Compute the chargeable gain for each asset first, with proper proceeds, cost and any other reliefs.
  4. 4Check the lifetime limit. Deduct earlier qualifying gains from £1,000,000 to find the room left.
  5. 5Split the gains into those at 14% and the rest. Set losses and the £3,000 annual exempt amount against the gains that save the most tax.
  6. 6Work out how much of the basic rate band remains after taxable income. Deduct the qualifying gains (after any exempt amount) from that remaining band, because they use it first. Tax the other gains at 18% within what is left and at 24% above it.
  7. 7Add up the CGT, state that the relief must be claimed, and note the payment date and any planning point.

Quickest way: Rate-split shortcut

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

  1. Write the qualifying gain and cap it at the remaining £1,000,000. Any excess counts as an other gain.
  2. Deduct the £3,000 exempt amount from the other gains first, because they are taxed at 18% or 24%. If there are no other gains, deduct it from the qualifying gain.
  3. Tax the qualifying part at 14%.
  4. Subtract taxable income from £37,700 to find the unused basic rate band. If taxable income is £37,700 or more, the band left is nil.
  5. Deduct the qualifying gains (after any exempt amount) from the unused band. The qualifying gains use the band first. What is left is the band available to other gains.
  6. Tax other gains at 18% within the band left and at 24% above it.
  7. Total the lines.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

  • Applying 10% or an old rate to qualifying gains.

    Memory of earlier years or other sources.

    Fix: Use the rate in the tax tables: 14%.

  • Treating the lifetime limit as an annual limit.

    Confusing it with the annual exempt amount.

    Fix: Remember the limit is cumulative. Deduct earlier qualifying gains.

  • Applying IR to a director or employee, or to shares bought from another shareholder.

    Mixing up the BADR and IR conditions.

    Fix: IR is for outside investors in new, cash-subscribed ordinary shares of an unlisted trading company. Check the investor's role.

  • Using the annual exempt amount against the 14% gain when there are other gains.

    Automatically deducting it from the first gain.

    Fix: Set it against gains taxed at 24% first, then 18%, where it saves more tax. Use it against the 14% gain only when nothing else is left, for example when those are the only gains.

  • Forgetting that BADR or IR must be claimed.

    Treating reliefs as automatic.

    Fix: Say that an election is needed, and mention it in your advice.

  • Assuming the 14% gain does not affect the rate on other gains.

    Thinking qualifying gains are outside the rate bands.

    Fix: Taxable income uses the basic rate band first. Qualifying gains are taxed at 14% and use up any band left, so other gains fall into the 24% rate unless band remains. The band is applied in this order. You cannot allocate it as you choose.

Worked examples

Example 1

Priya sells her sole trade business and makes qualifying gains of £400,000. She has not used BADR before. She has no other gains and taxable income of £60,000. Compute the CGT, assuming BADR conditions are met.

Show the solution
  1. Remaining BADR limit is £1,000,000, so all £400,000 qualifies.
  2. The annual exempt amount of £3,000 is available. She has no gains taxed at 18% or 24%, so the only gain it can be set against is the qualifying gain: £400,000 − £3,000 = £397,000.
  3. Tax at 14%: £397,000 × 14% = £55,580.

Answer: CGT payable is £55,580, provided BADR is claimed. Without the relief, the £397,000 gain would be taxed at 24%, because her income already fills the basic rate band. That would be £95,280, so the relief saves £39,700.

Example 2

Arun sells shares in his personal trading company and makes a qualifying gain of £1,100,000. He used £300,000 of his BADR limit on an earlier disposal. He has no other gains and taxable income of £50,000. Compute the CGT, assuming BADR conditions are met.

Show the solution
  1. Remaining BADR room: £1,000,000 − £300,000 = £700,000.
  2. The excess gain not covered: £1,100,000 − £700,000 = £400,000.
  3. Taxable income of £50,000 already exceeds the basic rate band of £37,700, so no band is left for the 14% gain or for the excess. The excess is taxed at 24%.
  4. Annual exempt amount: £3,000 goes against the excess, which bears 24%. Taxable excess: £400,000 − £3,000 = £397,000.
  5. CGT on the qualifying part: £700,000 × 14% = £98,000.
  6. CGT on the excess: £397,000 × 24% = £95,280.
  7. Total CGT: £98,000 + £95,280 = £193,280.

Answer: CGT payable is £193,280, provided BADR is claimed. The basic rate band is already used up by taxable income, so the excess is taxed at 24%. The exempt amount is best used against that excess.

Exam tips

  • Quote the 14% rate and the £1,000,000 limit from the tax tables, but learn the qualifying conditions yourself because they are not in the tables.
  • Always show a clear condition test with a pass or fail conclusion for each relief. These are easy marks.
  • Set the annual exempt amount against gains taxed at the highest rate first, and say why.
  • Mention that the relief must be claimed, and point out when IR is better than no relief for an outside investor.
  • In planning requirements, note that the limits are separate for BADR and IR, and look for ways to use both.

Practice questions from Capital gains tax: the scope of the taxation of capital gains

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 difference between BADR and investors' relief?

BADR is for people who run or work in a business or a personal company. Investors' relief is for outside investors in unlisted trading companies. Both give a 14% rate and each has a £1,000,000 lifetime limit.

What is the BADR lifetime limit and rate for ATX?

The tax tables give a lifetime limit of £1,000,000 and a rate of 14%. The limit is cumulative, so earlier qualifying gains reduce the amount left.

Can I use both BADR and investors' relief?

Yes. They have separate £1,000,000 limits. A person who qualifies for both can have up to £2,000,000 of gains taxed at 14% over a lifetime.

Do I have to claim these reliefs?

Yes. Both are elective reliefs, so the taxpayer must make a claim. In an exam, say so in your answer.