Skip to content

Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Capital Gains Tax Rates, Annual Exempt Amount and BADR for ACCA ATX

Updated 11 October 2026 · Fact-checked

For an individual, gains are taxed after deducting the annual exempt amount of £3,000. The rates are 18% and 24%, depending on how much basic rate band is unused. Business asset disposal relief and investors' relief tax qualifying gains at 14%, up to a £1,000,000 lifetime limit each. You compare outcomes to advise.

Understand Capital Gains Tax Rates, Annual Exempt Amount and BADR

Capital gains tax (CGT) is charged on the chargeable gains of an individual in a tax year. First you total the gains and deduct allowable losses. Then you deduct the annual exempt amount of £3,000. What is left is the taxable gain.

The rate depends on your other income. The 18% lower rate applies to the part of the gain that falls within any unused basic rate band of £37,700. The 24% higher rate applies to the rest. To find the unused band, take taxable income (after the personal allowance) and deduct it from £37,700. Gains sit on top of income.

Business asset disposal relief (BADR) cuts the rate to 14% on qualifying business gains. The tables give a lifetime limit of £1,000,000. Investors' relief also taxes qualifying gains at 14%, with its own separate £1,000,000 lifetime limit. BADR is aimed at people who run or work in the business. Investors' relief is aimed at outside investors in unlisted trading companies. The detailed qualifying conditions are not in the tables, so learn them from your study text.

In advice questions, the rate is only part of the story. You choose which gains to put under the relief, how to use the annual exempt amount, and who owns the asset. The annual exempt amount is best used against gains taxed at the highest rate. Gains taxed at 14% are taken first, and they use up any unused basic rate band. Other gains then take whatever band is left at 18%, and the rest fall into 24%. Always check how the order of set-off affects the answer.

Key rules to remember

Taxable gain
Taxable gain = Chargeable gains − current-year losses − brought-forward losses (only as needed to reduce gains to the AEA) − annual exempt amount (£3,000)
Set current-year losses first. Brought-forward losses are used only as needed to bring gains down to the annual exempt amount.
CGT rates
Lower rate 18%; higher rate 24%
The lower rate applies only to the extent the basic rate band of £37,700 is unused by taxable income.
Unused basic rate band
Unused band = £37,700 − taxable income (not below nil)
Taxable income is after the personal allowance and reliefs. Gains are treated as the top slice.
BADR and investors' relief rate
Qualifying gains taxed at 14%
Each relief has a separate lifetime limit of £1,000,000. Gains above the limit fall into 18% or 24%.
Annual exempt amount
£3,000 per individual per tax year
It is lost if unused. It cannot be carried forward.

How to solve Capital Gains Tax Rates, Annual Exempt Amount and BADR questions

Use this order for any CGT rate question, whether it is a straight computation or a choice between alternatives.

  1. 1Identify the taxpayer, the tax year and each disposal. Note any earlier use of the £1,000,000 lifetime limits.
  2. 2Compute each gain and separate qualifying gains (BADR or investors' relief) from other gains. Check the conditions for the relief first.
  3. 3Deduct current-year losses, then the annual exempt amount. Decide which gains it is best set against.
  4. 4Work out taxable income and the unused basic rate band.
  5. 5Tax the gains. Tax the 14% relief gains first, and reduce the unused basic rate band by those gains. Then tax the other gains at 18% on any band left and at 24% on the rest. Show each slice.
  6. 6Add the tax. Note the payment date if asked.
  7. 7If advising, compare the alternatives with numbers. State the saving and any conditions or risks.
  8. 8Write the conclusion in the form requested, for example a short email, using the client's name and facts.

Quickest way: Band and slice method

When to use it: Use it when time is short and the question has several gains and some income.

  1. Write the unused basic rate band in one line.
  2. List gains by type: relief at 14%, other gains.
  3. Apply the annual exempt amount to the other gains first, if the rates are the same or higher.
  4. Tax the relief gains first at 14% and reduce the unused band by them. Then tax the other gains: 18% on any band left, then 24% on the rest.
  5. Check the total gain is fully taxed, then add up.

Common mistakes in Capital Gains Tax Rates, Annual Exempt Amount and BADR

  • Applying 18% or 24% by looking only at total income, not the unused basic rate band.

    Students treat the rate as depending on being a higher rate taxpayer overall.

    Fix: Always compute £37,700 less taxable income. Only the unused part gives the 18% rate.

  • Deducting the personal allowance twice or forgetting it when finding taxable income.

    The income tax computation is rushed.

    Fix: Use taxable income after the personal allowance. Write the figure clearly before computing the band.

  • Putting the annual exempt amount against gains taxed at 14% when other gains are taxed at 24%.

    Students deduct it automatically from the first gain.

    Fix: Set it against the gains taxed at the highest rate first, subject to the loss rules.

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

    The limit is easy to miss in a long scenario.

    Fix: Track the previous gains that used the relief. Tax any excess at 18% or 24%.

  • Confusing BADR with investors' relief.

    Both give 14% and both have a £1,000,000 limit.

    Fix: BADR is for those involved in the business. Investors' relief is for outside investors. Each limit is separate.

  • Giving a rate comparison without conditions or a conclusion.

    Students focus on calculations and forget the advice marks.

    Fix: State the conditions that must be met, quantify the saving, and give a clear recommendation.

Worked examples

Example 1

Sam has taxable income of £30,000 in 2025/26. He makes chargeable gains of £20,000 on shares that do not qualify for any relief. He has no losses. Compute his CGT.

Show the solution
  1. Gains £20,000 less annual exempt amount £3,000 = taxable gain £17,000.
  2. Unused basic rate band = £37,700 − £30,000 = £7,700.
  3. £7,700 at 18% = £1,386.
  4. Remaining gain = £17,000 − £7,700 = £9,300.
  5. £9,300 at 24% = £2,232.
  6. Total CGT = £1,386 + £2,232 = £3,618.

Answer: Sam's CGT is £3,618.

Example 2

Priya has taxable income of £20,000 in 2025/26. She sells her shareholding in a company and makes a gain of £100,000 that qualifies for business asset disposal relief. She has no earlier claims. She also sells an investment property with a gain of £10,000, which does not qualify. Compute her CGT, using the annual exempt amount in the most beneficial way.

Show the solution
  1. Unused basic rate band = £37,700 − £20,000 = £17,700.
  2. Use the £3,000 annual exempt amount against the non-qualifying gain, which is taxed at a higher rate than 14%. Taxable property gain = £10,000 − £3,000 = £7,000.
  3. The BADR gain of £100,000 is within the £1,000,000 limit. It is taxed first at 14% = £14,000.
  4. The BADR gain uses up all of the £17,700 unused basic rate band, so no band is left for the property gain.
  5. The £7,000 property gain is taxed at 24% = £1,680.
  6. Total CGT = £14,000 + £1,680 = £15,680.

Answer: Priya's CGT is £15,680.

Exam tips

  • Write out taxable income and the unused basic rate band at the top of every CGT answer. Marks are given for that working.
  • Keep the tax tables open in your mind: 18%, 24%, 14%, £3,000 and the £1,000,000 limits are all given, so do not waste time memorising them.
  • In planning questions, quantify each option and then comment on conditions. Professional skills marks reward a clear recommendation.
  • Show the order in which you tax gains. Even if one number is wrong, the method earns marks.
  • Round to the nearest £ as the supplementary instructions say, and show all workings.

Practice questions from Tax advantages and disadvantages of alternative courses of action

Capital Gains Tax Rates, Annual Exempt Amount and BADR in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Capital Gains Tax Rates, Annual Exempt Amount and BADR: frequently asked questions

What are the CGT rates for individuals in ATX-UK?

The rates are 18% and 24%. The 18% rate applies to gains within any unused basic rate band. The 24% rate applies to the rest.

What is the annual exempt amount for ATX-UK?

It is £3,000 per individual per tax year. It is deducted after losses. If you do not use it, you lose it.

What is the difference between BADR and investors' relief?

Both tax qualifying gains at 14% and each has a £1,000,000 lifetime limit. BADR is for people involved in the business. Investors' relief is for outside investors in unlisted trading companies. Learn the exact conditions from your study text.

Should I use the annual exempt amount against BADR gains?

Usually not if you also have gains taxed at 18% or 24%. Using it against the higher-rate gains saves more tax. Check the effect on the basic rate band as well.