Advanced Taxation (UK) · Legitimate tax planning measures

Capital Gains Tax Planning and Business Asset Disposal Relief

Updated 11 October 2026 · Fact-checked

CGT planning means legitimately cutting the tax on gains by using reliefs, allowances and timing. Check the tax tables for the rates. Use each annual exempt amount, spread gains across spouses and tax years, and claim business asset disposal relief or investors' relief where the conditions are met. Then compare the tax saved with the cost and risk.

Understand Capital Gains Tax Planning and Business Asset Disposal Relief

Capital gains tax (CGT) is charged on an individual's chargeable gains in a tax year. Planning does not mean avoiding tax by tricks. It means using reliefs and allowances that Parliament has provided, in a way that fits the client's real goals.

There are four main levers. The first is the rate. Gains are taxed at a lower rate or a higher rate, depending on how much of the basic rate band is left after taxable income. The second is the annual exempt amount, which is £3,000 in the tax tables. It is use-it-or-lose-it: you cannot carry it forward. The third is timing: which tax year a gain falls into, and when the tax is paid. The fourth is relief: business asset disposal relief (BADR) and investors' relief cut the rate to 14% in the tax tables, up to a lifetime limit of £1,000,000 each.

BADR is for people who dispose of a business or their shares in their own trading company. In outline, the gain must come from one of these: all or part of a trading business you run as a sole trader or partner; assets used in that business after it ceases (within a time limit); or shares in your personal trading company. For shares, the company must be a trading company or the holding company of a trading group, and you must be an officer or employee. You must also hold at least 5% of the ordinary share capital. That holding must carry at least 5% of the voting rights, and an entitlement to at least 5% of the profits available for distribution and of the assets on a winding up (or of the proceeds on a disposal of the company). In each case the conditions must be met throughout the two years before the disposal (or before cessation, with the disposal inside three years of it). Associated disposals of personal assets used in the business can also qualify, subject to conditions.

Investors' relief is for outside investors. It covers newly issued shares in an unlisted trading company that you subscribed for in cash and held for three years. You must not be an officer or employee of the company (or of a connected company). It has its own £1,000,000 lifetime limit, separate from BADR.

In the exam you are asked to advise. That means you calculate the tax with and without the planning step, state the saving, and flag the conditions, risks and anything the client must do. Always use the rates in the tax tables provided, unless the question tells you otherwise. The supplementary instructions say to assume the 2025/26 rates and allowances continue.

Key rules to remember

CGT rates (from the tax tables): Lower rate 18%; higher rate 24%; Gains use any unused basic rate band after taxable income. The part of the gain within the band is taxed at 18%, the rest at 24%.
Annual exempt amount: £3,000 per individual per tax year; Not transferable between spouses and not carried forward. Each spouse or civil partner has their own.
BADR and investors' relief rate: 14% on qualifying gains; Use the rate in the tax tables. Lifetime limit is £1,000,000 for BADR and a separate £1,000,000 for investors' relief.
Taxable gain: Net chargeable gains − current-year losses − annual exempt amount (and any brought-forward losses only down to the exempt amount); Current-year losses must be set off in full first. Brought-forward losses are used only to reduce gains to the annual exempt amount, so the exempt amount is not wasted.
Where to set the annual exempt amount: Set it against gains taxed at the highest rate first; This gives the most tax saved. For example, set it against gains at 24% before gains at 18% or 14%.
BADR qualifying period: 2 years before disposal (or before cessation, if disposal is within 3 years of cessation); Check this for both business and share disposals.
Interspouse transfers: Transfer between spouses or civil partners living together = no gain, no loss; Used to share gains, use two annual exempt amounts and use the lower-rate band of the other spouse.

How to solve Capital Gains Tax Planning and Business Asset Disposal Relief questions

Use this order for any CGT planning requirement. It keeps your answer structured and picks up the marks for application and advice.

1Read the requirement and the client's objective. Is it minimising tax, raising cash, or keeping control of the business?
2List each disposal with its gain or loss, who owns the asset, and the date of the contract. Put each in the right tax year.
3Check relief conditions one by one: BADR (type of disposal, trading company status, two-year period, and for shares the officer or employee test and the 5% holding with voting rights and profit and asset entitlement) and investors' relief (new shares, cash subscription, unlisted trading company, three-year period, not an officer or employee). Say which conditions are met, not just that the relief applies.
4Work out the rate for each gain. Find the unused basic rate band after taxable income, and remember that the lower and higher rates differ. BADR and investors' relief gains are taxed at 14%.
5Apply losses and the annual exempt amount in the right order. Set the exempt amount against gains taxed at the highest rate first.
6Consider planning steps: transfer assets between spouses before sale, move a disposal into another tax year, use available lifetime limits, or defer the gain using a deferral relief if the facts fit.
7Compute the tax before and after each step and state the saving as a number.
8Add a short conclusion with the practical points: the payment date, any risk (for example, the transfer must be a genuine gift) and the next action for the client.

Quickest way: Rate-by-slice shortcut

When to use it: Use this when time is short and you need the saving from a planning step, such as claiming BADR or splitting a gain between spouses.

Write the gain and the rate it would face without the step.
Write the gain and the rate it faces with the step.
Multiply the difference in rate by the gain affected, after allowing for the annual exempt amount.
For a BADR claim the saving is the qualifying gain × (24% − 14%) if the taxpayer is a higher rate payer, or × (18% − 14%) for gains that would otherwise fall in the basic rate band. Check that the claim fits within the £1,000,000 lifetime limit.
For a spouse transfer, add the extra £3,000 exempt amount and any gain moved into the spouse's lower-rate band, then check the total.

Common mistakes in Capital Gains Tax Planning and Business Asset Disposal Relief

Applying the 14% rate to every gain on a business sale
Students see BADR and apply it to the whole disposal without checking which assets qualify.
Fix: Split the gain by asset. Assets not used in the business, or investment assets, may not qualify. Apply 14% only to the qualifying gain and tax the rest at 18% or 24%.
Skipping the two-year ownership or business period
The scenario gives a date near the cutoff and students assume the relief is available.
Fix: Count the period from the start date to the disposal (or cessation). For shares, check the officer or employee status and the 5% holdings throughout the period.
Setting the annual exempt amount against the wrong gain
Students deduct it from the first gain in the question.
Fix: Use it against gains taxed at the highest rate first. In a mixed question that usually means a 24% gain before a 14% BADR gain.
Forgetting that the lifetime limit is cumulative
Students treat £1,000,000 as a per-disposal limit.
Fix: Deduct earlier qualifying gains first. Any excess over what remains is taxed at 18% or 24%. BADR and investors' relief have separate limits.
Treating a spouse transfer as taxable, or advising a transfer without conditions
Students confuse the transfer with an ordinary disposal at market value.
Fix: Transfers between spouses or civil partners living together are no gain, no loss. Say that the gift must be real and outright, and that the receiving spouse then takes over the original cost and date.
Giving only numbers with no advice
Students run out of time and stop after the computation.
Fix: Finish with a short recommendation, the saving, the payment date and any risk. These earn professional skills marks.

Worked examples

Example 1

Ravi, a sole trader for six years, sells his whole business in 2025/26. The chargeable gains on the business assets total £350,000, and all qualify for business asset disposal relief. He has made no earlier BADR claims. He also sells quoted shares, making a gain of £13,000. His taxable income is £150,000. Calculate his CGT for 2025/26 and the saving from BADR.

Show the solution

Ravi's taxable income is above the top of the higher rate band, so he has no basic rate band left. Gains outside BADR are taxed at 24%.
Check BADR: he has run the business as a sole trader for six years, which exceeds two years. He disposes of the whole business. The £350,000 is under the £1,000,000 lifetime limit, so all of it qualifies.
Set the annual exempt amount against the gain taxed at the highest rate. Shares gain: £13,000 − £3,000 = £10,000.
CGT on shares: £10,000 × 24% = £2,400.
CGT on business gain with BADR: £350,000 × 14% = £49,000.
Total CGT: £49,000 + £2,400 = £51,400.
Without BADR the business gain would be taxed at 24%: £350,000 × 24% = £84,000. Saving from BADR: £84,000 − £49,000 = £35,000 (that is £350,000 × 10%).
Remaining lifetime limit: £1,000,000 − £350,000 = £650,000.

Answer: Ravi's CGT for 2025/26 is £51,400. BADR saves £35,000, and £650,000 of his lifetime limit is left.

Example 2

Anna is a higher rate taxpayer. She plans to sell quoted shares in 2025/26 and expects a gain of £30,000. Her husband Ben has taxable income of £7,430 and no gains. Neither has made other disposals. Calculate the CGT if Anna sells all the shares, and the CGT if she first transfers half the shares to Ben so each sells half. Assume the gain splits equally.

Show the solution

Anna sells alone. Her band is used up, so the rate is 24%. Taxable gain: £30,000 − £3,000 = £27,000. CGT: £27,000 × 24% = £6,480.
With the transfer. Transfers between spouses living together are no gain, no loss, so the transfer has no CGT. Each then sells and has a gain of £15,000.
Anna: £15,000 − £3,000 = £12,000 × 24% = £2,880.
Ben: £15,000 − £3,000 = £12,000. His unused basic rate band is £37,700 − £7,430 = £30,270, which is more than £12,000. So all of it is taxed at 18%: £12,000 × 18% = £2,160.
Total CGT with the transfer: £2,880 + £2,160 = £5,040.
Saving: £6,480 − £5,040 = £1,440. This comes from Ben's extra £3,000 exempt amount and his lower rate.
Advice: the transfer must be a genuine, outright gift to Ben. He then owns the shares and the proceeds.

Answer: CGT is £6,480 if Anna sells alone and £5,040 if the shares are split, a saving of £1,440, provided the gift to Ben is genuine and outright.

Exam tips

Open the tax tables and note the CGT rates, the £3,000 annual exempt amount and the BADR and investors' relief limit and rate before you start. Do not rely on memory for figures.
State each BADR condition and tick it against the facts. Examiners award marks for applying conditions, not for listing them.
In a question on a sale of a business or shares, work out the saving as a number and then write a short recommendation. This supports the professional skills marks.
Always give the unused basic rate band calculation when a client has lower income. It is the key to the 18% versus 24% choice.
Mention the risks and practical points in one or two lines: genuine gifts, the date the contract is made, and when the tax is due.

Practice questions from Legitimate tax planning measures

Capital Gains Tax Planning 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

Capital Gains Tax Planning and Business Asset Disposal Relief: frequently asked questions

What are the conditions for business asset disposal relief in ATX?

The disposal must be of a qualifying business, or of shares in your personal trading company, and the conditions must have been met for two years before disposal (or before cessation, with disposal within three years). For shares, the company must be a trading company or the holding company of a trading group, and you must be an officer or employee. You must hold at least 5% of the ordinary share capital, carrying at least 5% of the voting rights and an entitlement to at least 5% of distributable profits and of assets on a winding up (or of the proceeds on a disposal). The gain is taxed at the BADR rate in the tax tables, up to the lifetime limit.

What is the difference between investors' relief and business asset disposal relief?

BADR is for people involved in the business: owners of a trade and officers or employees who hold at least 5% of their company. Investors' relief is for outside investors who subscribed in cash for new shares in an unlisted trading company, held them for three years, and are not officers or employees of the company (or of a connected company). Both give the same rate in the tax tables and each has its own £1,000,000 lifetime limit.

How do I use the annual exempt amount in CGT planning?

Each individual has £3,000, set in the tax tables, and it cannot be carried forward. Use it every year, and share assets between spouses so that both use theirs. When gains are taxed at different rates, set it against the gain taxed at the highest rate first.

Which CGT rates should I use in the ACCA exam?

Use the rates in the tax tables printed in the exam. The supplementary instructions say to assume the 2025/26 rates and allowances continue unless the question says otherwise. Do not rely on rates from other sources.