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Advanced Taxation (UK) · Capital gains tax: the use of exemptions and reliefs in deferring and minimising tax liabilities

Business Asset Disposal Relief and Investors' Relief in ATX

Updated 11 October 2026 · Fact-checked

Business asset disposal relief and investors' relief cut the CGT rate on qualifying gains to 14%, using the rate in the ACCA tax tables. Each has a £1,000,000 lifetime limit. Check the asset and holding conditions, apply the limit, tax the qualifying gain at 14%, and tax any excess at 18% or 24%.

Understand Business Asset Disposal Relief and Investors' Relief

Normal CGT rates are 18% (lower rate) and 24% (higher rate). Business asset disposal relief (BADR) and investors' relief (IR) are reliefs that tax certain gains at a reduced rate instead. The tax tables show this rate as 14% for both.

BADR is aimed at people who sell, or wind down, a business they run. It covers the disposal of all or part of a trading business run as a sole trader or partner. It also covers business assets sold within three years after the business ceases, and shares in your personal trading company. A related disposal of a personal asset used in the business can also qualify (an associated disposal), but only if it is made as part of withdrawing from the business.

For a personal company, the general conditions are: it must be a trading company (or the holding company of a trading group), you must hold at least 5% of the ordinary shares and 5% of the voting rights, and you must be an officer or employee. These conditions must be met throughout the two years ending on the disposal date, or on the date the company ceased trading if you sell within three years of that. For a sole trader or partner, you must have owned the business for the two years before disposal or cessation.

Investors' relief is for outside investors. It covers newly issued ordinary shares in an unlisted trading company, subscribed for in cash, issued on or after 17 March 2016, and held for at least three years. The investor must not be an employee or officer of the company (or of a connected company). Shares traded on AIM are treated as unlisted, so they can qualify.

Both reliefs have a separate lifetime limit of £1,000,000 of qualifying gains. Gains above the limit are taxed at the normal rates. Earlier claims use up the limit, so always check how much has already been used.

Gains that qualify for the 14% rate are taxed first. They use up any unused basic rate band before other gains are taxed. Gains above the limit then fall into whatever band is left: 18% in any remaining basic rate band, and 24% above it.

Key rules to remember

BADR and investors' relief rate
Qualifying gain (up to unused lifetime limit) × 14%
Use the rate shown in the tax tables provided in the exam.
Lifetime limits
BADR: £1,000,000. Investors' relief: £1,000,000
The two limits are separate. A claim under one does not use up the other.
Gain above the limit
Excess gain × 18% or 24%
Taxed at the normal rates. The rate depends on how much of the basic rate band is left.
Normal CGT rates and annual exempt amount
Lower rate 18%. Higher rate 24%. Annual exempt amount £3,000
Set the annual exempt amount against the gains taxed at the highest rate first.
BADR shareholding test
≥ 5% ordinary shares and ≥ 5% voting rights, plus officer or employee, for 2 years
Applies to shares in a personal trading company.
Investors' relief holding period
Newly issued shares, subscribed for in cash, held for 3 years
The company must be an unlisted trading company. The investor is not an employee or paid officer.

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

Use this method for any BADR or investors' relief question. Test eligibility first, then the limit, then the tax.

  1. 1Identify the disposal: sole trader or partnership business, assets after cessation, personal company shares, or newly issued shares held as an investor.
  2. 2Decide which relief might apply: BADR if the person works in or runs the business, and investors' relief if they are an outside investor.
  3. 3Test each condition with the dates in the question: the two-year period for BADR, the three-year holding period for IR, the 5% holdings, the trading status of the company, and the officer or employee status.
  4. 4Compute the chargeable gain on each asset. Only gains on qualifying assets are eligible. For a business sale, exclude gains on non-qualifying assets such as investment assets.
  5. 5Check the lifetime limit. Deduct earlier qualifying gains from £1,000,000 to find what is left.
  6. 6Tax the qualifying gain within the limit at 14%. Tax the rest at 18% or 24%, depending on the basic rate band remaining. Set the annual exempt amount against the highest-rate gains first.
  7. 7Add up the tax and state it. Mention how much of the lifetime limit remains, and give any planning point such as splitting a disposal across tax years.

Quickest way: Condition check, limit check, rate

When to use it: Use this when a question asks for the CGT on a business or share disposal and gives you limited time.

  1. Write the two-year (BADR) or three-year (IR) test next to the dates, and tick or cross each condition.
  2. Write 'Limit left = £1,000,000 − earlier claims'.
  3. Split the gain into 'within limit' and 'excess'.
  4. Apply 14% to the part within the limit. Apply 24% (or 18% if there is basic band left) to the excess after the £3,000 annual exempt amount.
  5. Add the lines and write the total tax.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

  • Applying BADR when the 5% holding or two-year period is missed, even by a short time.

    Students skim the dates and assume the relief is automatic for any business owner.

    Fix: Write the dates down and test each condition separately. If a condition fails, say so and use normal rates. If the date is close, suggest delaying the sale.

  • Treating all gains on the sale of a business as qualifying.

    Students forget that only qualifying business assets count, not investment assets or non-business assets.

    Fix: List each asset, decide whether it qualifies, and apply 14% only to the qualifying gains.

  • Ignoring earlier claims against the £1,000,000 lifetime limit.

    The limit is a lifetime figure, not a yearly one, and the question may mention past disposals only briefly.

    Fix: Always compute the 'limit remaining' line first, and tax the excess at the normal rates.

  • Mixing up BADR and investors' relief conditions, for example requiring the investor to be an employee.

    Both reliefs give the same rate and the same size of limit, so they look alike.

    Fix: Remember the contrast: BADR is for those involved in the business, IR is for outside investors in new shares held three years.

  • Setting the annual exempt amount against the 14% gains first.

    Students apply it to the first gain listed.

    Fix: Set the £3,000 annual exempt amount against gains taxed at the highest rate first. This saves the most tax.

  • Using a rate from memory instead of the tax tables.

    BADR rates have changed over time and older notes show different figures.

    Fix: Take the rate and the limit from the tax tables given in the exam, and state the rate you use.

Worked examples

Example 1

Aisha has owned 100% of the ordinary shares of Zed Ltd, an unlisted trading company, since 2016. She has been its managing director throughout. She sells all her shares in the current year and makes a gain of £600,000. She has made no earlier BADR claims and has no other gains. Calculate her CGT liability, using the tax table rates.

Show the solution
  1. Eligibility: she holds 100% of the shares and votes, it is a trading company, she is an officer and employee, and the holding period is well over two years. BADR applies.
  2. Lifetime limit: £1,000,000 is available and the gain is £600,000, so the whole gain is within the limit.
  3. Annual exempt amount: £600,000 − £3,000 = £597,000 taxable.
  4. Tax: £597,000 × 14% = £83,580.
  5. Limit used: the lifetime limit is used by the full qualifying gain of £600,000, not the net gain after the annual exempt amount. Remaining BADR limit = £1,000,000 − £600,000 = £400,000.

Answer: Aisha's CGT liability is £83,580. Her remaining BADR lifetime limit is £400,000 (£1,000,000 − £600,000).

Example 2

Raj is a higher rate taxpayer. He has already claimed BADR on £700,000 of gains in earlier years. This year he sells his sole trader business and makes a gain of £500,000 on qualifying assets. He has no other gains. Calculate his CGT liability, using the tax table rates.

Show the solution
  1. Eligibility: assume he has owned the business for at least two years, so the gains qualify for BADR.
  2. Limit left: £1,000,000 − £700,000 = £300,000.
  3. Gain within the limit: £300,000 is taxed at 14%. BADR gains are taxed first and would use up any unused basic rate band. Raj is a higher rate taxpayer and his income uses all of his basic rate band, so none is left.
  4. Excess gain: £500,000 − £300,000 = £200,000 is taxed at the normal rate. No basic rate band remains, so the rate is 24%.
  5. Annual exempt amount: set £3,000 against the excess, which is taxed at the highest rate. The excess becomes £197,000.
  6. Tax on the BADR part: £300,000 × 14% = £42,000.
  7. Tax on the excess: £197,000 × 24% = £47,280.
  8. Total: £42,000 + £47,280 = £89,280.

Answer: Raj's CGT liability is £89,280. His BADR lifetime limit is now fully used.

Exam tips

  • Test every condition against the dates and percentages in the question before you compute any tax. Marks are given for the reasoning as well as the answer.
  • Say which relief applies and why. If the question has two people, such as an employee-shareholder and an outside investor, show clearly that one gets BADR and the other investors' relief.
  • Show the 'limit remaining' line for every claim. It is an easy mark and it catches the trap in questions that mention earlier disposals.
  • In planning requirements, look for timing advice: waiting until the two-year or three-year period is met, or the 5% test is satisfied, can reduce tax significantly.
  • Always quote the rate and limit you are using from the tax tables. Use the professional skills marks by presenting a clear, concise recommendation.

Practice questions from Capital gains tax: the use of exemptions and reliefs in deferring and minimising tax liabilities

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 business asset disposal relief and investors' relief?

BADR is for people involved in the business, such as sole traders, partners, and officers or employees who hold at least 5% of a trading company. Investors' relief is for outside investors who subscribe in cash for newly issued shares in an unlisted trading company and hold them for three years. Both give the same reduced rate and have the same £1,000,000 limit, but the limits are separate.

What is the BADR lifetime limit in ATX?

The tax tables give a lifetime limit of £1,000,000 for business asset disposal relief. It is cumulative over your lifetime, so gains already claimed under BADR use it up. Gains above the unused limit are taxed at the normal CGT rates.

What rate of CGT applies to business asset disposal relief?

The tax tables show 14% for both business asset disposal relief and investors' relief. Use the rate in the tables provided in your exam. Gains above the lifetime limit are taxed at 18% or 24%.

Can I get BADR if I sell shares in a company I invested in but do not work for?

No. BADR needs you to be an officer or employee of the company, hold at least 5% of the ordinary shares and voting rights, and meet the trading company and two-year tests. If you are a pure investor, check whether investors' relief applies instead. This needs newly issued shares subscribed for in cash and held for three years.