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Advanced Taxation (UK) · Investment and other expenditure that reduces tax liabilities

Business Asset Disposal Relief and Investors' Relief Explained

Updated 11 October 2026 · Fact-checked

Business asset disposal relief (BADR) and investors' relief both cut the capital gains tax rate on qualifying gains to 14% (per the ATX tax tables), up to a £1,000,000 lifetime limit each. BADR suits owners and employees of trading businesses. Investors' relief suits outside investors in new unlisted company shares. Gains above the limits are taxed at 18% or 24%.

Understand Business Asset Disposal Relief and Investors' Relief

Capital gains tax (CGT) normally applies at 18% or 24%. Two reliefs reduce this for gains linked to trading businesses. In the ATX-UK tax tables, the reduced rate for both is 14%, and the lifetime limit for each is £1,000,000.

Business asset disposal relief (BADR) rewards people who own or work in a business and then sell it. It covers three main types of disposal: all or part of a trading business run by a sole trader or partner; business assets sold after the business has ceased (within the time limit of three years from cessation); and shares in your personal trading company. A further, associated disposal of a personal asset used in the business can qualify when it goes with a withdrawal from the business.

For shares, your personal company is one where you hold at least 5% of the ordinary share capital and at least 5% of the voting rights, and you are an officer or employee. The conditions must be met throughout a qualifying period of two years ending on the date of disposal (or on cessation). The company must be a trading company, or the holding company of a trading group.

Investors' relief is aimed at outside investors. It applies to newly issued ordinary shares in an unlisted trading company that you subscribed for in cash. You must hold them for the required three-year period, which must start on or after 6 April 2016. You must not be an employee or officer of the company (apart from limited exceptions), and there is no 5% requirement.

The lifetime limits are separate. You have £1,000,000 of gains for BADR and a further £1,000,000 for investors' relief. Once a limit is used, further qualifying gains are taxed at 18% or 24% depending on your income level. You must make a claim; it is not automatic.

Key rules to remember

Reduced CGT rate
BADR / investors' relief gains taxed at 14%
This is the rate given in the ATX-UK tax tables for the year examined. Read the rate from the tables in the exam.
Lifetime limit
Relief available = £1,000,000 − qualifying gains already relieved
BADR and investors' relief each have their own £1,000,000 limit. Gains over the remaining limit are taxed at 18% or 24%.
Normal CGT rates
Lower rate 18%; higher rate 24%; annual exempt amount £3,000
Used for gains that do not qualify or exceed the limit.
BADR shareholding test
≥ 5% ordinary share capital and ≥ 5% voting rights, plus officer or employee, for 2 years
Both the holding and the office or employment must be met for the whole period ending on disposal or cessation.
Investors' relief holding test
New ordinary shares, unlisted trading company, cash subscription, held 3 years (period starting on or after 6 April 2016)
No 5% test. You must not be an employee or officer (limited exceptions).
Annual exempt amount use
Set the £3,000 against gains taxed at the highest rate first
This gives the lowest total tax. Use 24% gains first, then 18%, then 14%.

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

Use this method for any question that asks whether BADR or investors' relief applies and how much CGT results.

  1. 1Identify the disposal: sole trader or partnership business, assets after cessation, personal company shares, or newly issued shares by an outside investor.
  2. 2Test the conditions: trading status, the two-year period (BADR) or three-year period (investors' relief), the 5% holding and officer or employee test for BADR, and the no employee or officer test for investors' relief.
  3. 3Compute the chargeable gain on each asset in the normal way, then split it into qualifying and non-qualifying gains.
  4. 4Check the lifetime limit. Deduct earlier relieved gains from £1,000,000 to find the remaining limit. Gains over it are taxed at the normal rates.
  5. 5Decide the rate for non-qualifying gains. Use taxable income to see how much of the basic rate band is left: 18% inside the band, 24% above it.
  6. 6Apply the annual exempt amount of £3,000 against gains taxed at the highest rate first.
  7. 7Calculate the tax at 14%, 18% and 24%, state the claim deadline if asked, and comment on any planning point.

Quickest way: Four-line relief check

When to use it: Use when time is short and the question simply asks whether relief applies and what the tax is.

  1. Write the label: BADR (business or personal company) or investors' relief (outside investor).
  2. Tick the time test: 2 years (BADR) or 3 years (investors' relief), and the 5% test for BADR.
  3. Write remaining limit: £1,000,000 less earlier relieved gains.
  4. Tax = qualifying gain up to the limit × 14%, plus other gains × 24% (or 18% for any basic rate band left), after using the annual exempt amount on the highest-rate gains.

Common mistakes in Business Asset Disposal Relief and Investors' Relief

  • Treating the two reliefs as sharing one £1,000,000 limit.

    Both reliefs use the same figure and the same rate, so they look like one relief.

    Fix: Remember they are separate lifetime limits. Track BADR and investors' relief gains separately.

  • Applying BADR to an investor with 2% of the shares who is not an employee or officer.

    Students focus on the share sale and forget the 5% and officer or employee tests.

    Fix: Check the 5% holding, the voting rights, the office or employment and the full two-year period before applying BADR. An outside investor should be tested for investors' relief instead.

  • Using the annual exempt amount against the 14% gain first.

    The relieved gain feels like the main gain, so it gets the exemption.

    Fix: Set the £3,000 against gains taxed at the highest rate first (24%), then 18%, then 14%.

  • Ignoring earlier relieved gains when applying the £1,000,000 limit.

    Students treat each disposal in isolation.

    Fix: The limit is a lifetime limit. Always deduct previous BADR (or investors' relief) gains before looking at the current disposal.

  • Applying investors' relief to shares bought on the market or in a listed company.

    The word investor suggests any shareholding.

    Fix: Only new ordinary shares subscribed for in cash in an unlisted trading company qualify, and they must be held for the three-year period.

  • Forgetting that a claim is required.

    Relief seems automatic like the annual exempt amount.

    Fix: State that a claim must be made. The deadline is the first anniversary of the 31 January following the end of the tax year of disposal.

Worked examples

Example 1

Ravi, a sole trader for ten years, sells his whole trading business in 2025/26. The chargeable gain is £400,000, all qualifying for BADR. He has no other gains and has not claimed BADR before. Calculate his CGT.

Show the solution
  1. The disposal of the whole of a trading business run as a sole trader qualifies for BADR. He is within the £1,000,000 limit.
  2. Gain £400,000 less annual exempt amount £3,000 = £397,000 taxable.
  3. The whole gain qualifies for the 14% rate in the tax tables.
  4. Tax = £397,000 × 14% = £55,580.

Answer: Ravi's CGT liability is £55,580, provided he makes a BADR claim.

Example 2

Meena owns 30% of the ordinary shares of her trading company and has been its director for six years. In 2025/26 she sells all her shares for a gain of £1,200,000. She claimed BADR on an earlier disposal, with relieved gains of £300,000. Her taxable income is £60,000 and she has no other gains. Calculate her CGT.

Show the solution
  1. She meets the BADR conditions: at least 5% of shares and votes, an officer, and a trading company, throughout the two-year period.
  2. Remaining limit = £1,000,000 − £300,000 = £700,000.
  3. Qualifying gain: £700,000. Excess gain: £1,200,000 − £700,000 = £500,000.
  4. Her taxable income of £60,000 exceeds the £37,700 basic rate band, so the excess gain is taxed at 24%.
  5. Annual exempt amount £3,000 is set against the 24% gain: £500,000 − £3,000 = £497,000.
  6. Tax at 24% = £497,000 × 24% = £119,280.
  7. Tax at 14% = £700,000 × 14% = £98,000.
  8. Total = £119,280 + £98,000 = £217,280.

Answer: Meena's total CGT is £217,280.

Exam tips

  • The exam tax tables give the 14% rate and the £1,000,000 limits. Do not learn them as fixed numbers; read them from the tables provided.
  • Write the conditions as a short list and apply each one to the facts. Marks are given for naming the test and then concluding.
  • In advice questions, compare relief with no relief and say why the claim matters. Mention that BADR and investors' relief limits are separate.
  • Always state earlier relieved gains and the remaining limit in your working, even when it is simple.
  • Use the annual exempt amount on the highest-rate gains first and say so. It is a common easy mark.

Practice questions from Investment and other expenditure that reduces 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 who run or work in a business and sell it, including 5% shareholders who are officers or employees. Investors' relief is for outside investors who subscribed for new unlisted company shares and held them for three years. Each has its own £1,000,000 lifetime limit and the same 14% rate in the ATX tables.

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

The ATX-UK tax tables for June 2026 to June 2027 give a 14% rate and a £1,000,000 lifetime limit for both BADR and investors' relief. Gains above the limit are taxed at the normal 18% or 24% rates.

How do I claim business asset disposal relief?

You must make a claim; relief is not automatic. The claim is due by the first anniversary of the 31 January following the end of the tax year in which the disposal takes place. In an exam, state that a claim is needed.

Does the £3,000 annual exempt amount apply with BADR?

Yes. You can use it against any gain, including qualifying gains. For the lowest tax, set it against the gains taxed at the highest rate first, so the 14% gain is the last to use it.