BADR vs Investors' Relief: Which Applies to Your Shares?

Business Asset Disposal Relief applies to shareholders who work in the company, while Investors' Relief applies to outside investors who subscribed for new shares and do not work there. Both reduce the capital gains tax rate to 18% on qualifying gains up to a £1,000,000 lifetime limit in 2026/27, and each carries its own separate limit, so one individual can in principle access £2,000,000 of relieved gains across the two. The conditions pull in opposite directions: business asset disposal relief UK 2026 claimants must be officers or employees, whereas Investors' Relief generally requires that they are not. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, advises founders, co-investors and business angels on which relief their shares fall into. This article compares the two side by side, works through the tax at stake, and sets out where each is most commonly lost.

Key Takeaways

• Business Asset Disposal Relief and Investors' Relief both apply an 18% capital gains tax rate in 2026/27, compared with the main rate of 24% for higher and additional rate taxpayers.
• Each relief carries its own separate £1,000,000 lifetime limit, so an individual may access up to £2,000,000 of relieved gains in total.
• Business Asset Disposal Relief requires the claimant to be an officer or employee of the company and to hold at least 5% of the ordinary share capital for two years before disposal.
• Investors' Relief requires shares to have been newly subscribed for in cash in an unlisted trading company, held for at least three years, with no minimum shareholding percentage.
• Investors' Relief generally requires the shareholder not to be an employee or director of the company, subject to limited exceptions for unremunerated directors and certain business angels.
• The Investors' Relief lifetime limit was reduced from £10,000,000 to £1,000,000 for qualifying disposals made on or after 30 October 2024.

What is the difference between BADR and Investors' Relief?

The core difference is involvement: Business Asset Disposal Relief rewards people who run the business, and Investors' Relief rewards people who fund it without running it. That single distinction drives every other condition attached to the two reliefs.

Business Asset Disposal Relief, previously known as entrepreneurs' relief, is aimed at owner-managers. It requires a 5% personal stake, an officer or employee role, and a trading company, all satisfied throughout the two years ending on the date of disposal. It also covers disposals of sole trader businesses and partnership interests, not just company shares.

Investors' Relief was introduced in 2016 to attract external capital into unlisted trading companies. It has no minimum percentage holding, so a shareholder with 0.5% can claim in full, but the shares must have been newly issued to the investor for cash on or after 17 March 2016 and held for at least three continuous years. Shares bought from an existing shareholder never qualify, the point most investors miss. BADR entrepreneur's relief still appears under the older name in shareholder agreements drafted before 2020, but it refers to the same relief and the same single lifetime limit.

Do you have to work in the company to claim BADR?

Yes. A Business Asset Disposal Relief claimant must be an officer or an employee of the company, or of another company in the same trading group, throughout the two years ending on the date of disposal. There is no minimum salary and no minimum number of hours, but the role must be genuine and capable of being evidenced.

Investors' Relief takes the opposite approach. The general rule is that a claimant must not have been an employee or director of the company, or of a connected company, at any point from the date the shares were issued to the date of disposal. Two exceptions matter. An unremunerated director may still qualify, provided no payment beyond reasonable expenses is received. Separately, a person may become an employee more than 180 days after the shares were issued, where there was no reasonable prospect of employment at the time of subscription, the provision business angels who later join the board most often rely on.

The trap for a founder is resignation. Stepping down from the board before completion breaks the officer or employee condition and cannot be repaired retrospectively, because the test runs to the date of disposal rather than to the date heads of terms were signed.

How much tax do BADR and Investors' Relief actually save?

Both reliefs save six percentage points of capital gains tax, worth £60,000 on a fully relieved £1,000,000 gain in 2026/27. The relieved rate is 18% against a main rate of 24% for gains falling above the basic rate band.

Worked example: Sarah founded a trading company in 2019, holds 40% of the ordinary shares and has been managing director throughout. Her business partner's father subscribed £50,000 in cash for newly issued ordinary shares in 2020, has never worked in the company, and holds 3%. The company sells in 2026/27.

Sarah realises a gain of £950,000. After the £3,000 annual exempt amount, £947,000 is taxable. At 18% under Business Asset Disposal Relief the tax is £170,460, against £227,280 at 24%, a saving of £56,820. The investor realises a gain of £190,000. After their own £3,000 annual exempt amount, £187,000 is taxable, giving £33,660 at 18% under Investors' Relief against £44,880 at 24%, a saving of £11,220. Neither claim reduces the other's limit, because the two reliefs have separate £1,000,000 allowances. Had the investor been paid a modest consultancy fee as a director in 2023, the Investors' Relief claim would have failed entirely.

Can you claim both reliefs on the same shares?

No. A single disposal of shares can qualify for only one of the two reliefs, because the conditions are mutually exclusive: the officer or employee requirement in Business Asset Disposal Relief directly contradicts the non-employment requirement in Investors' Relief.

An individual can, however, hold two separate blocks of shares and claim a different relief on each, provided each block independently satisfies its own conditions. This arises where an investor subscribes as an outsider, joins the company more than 180 days afterwards, and then acquires a further tranche of shares in a working capacity. Dated documentation is essential, because HMRC tests each holding separately.

Where a shareholding fails both, the gain is taxed at the standard rates of 18% within the basic rate band and 24% above it. Business asset disposal relief UK 2026 planning therefore starts with identifying, well ahead of a sale, which category each block of shares sits in and whether the conditions have been continuously met. For a full overview of the relief including rates, claims and interaction with other reliefs, see our guide to Business Asset Disposal Relief.

When should you start planning a business asset disposal relief claim?

Planning should begin at least three years before an anticipated sale, because Investors' Relief carries a three-year holding period and Business Asset Disposal Relief a two-year qualifying period, and neither can be shortened. Selling business tax relief is won or lost long before the transaction reaches a lawyer.

Three actions carry the most value. First, review share classes: growth shares, non-voting shares and preference structures frequently fail the Business Asset Disposal Relief tests on voting rights or entitlement to distributable profits, even where the headline percentage looks safe. Second, check trading status, since investment assets such as a rental property or a securities portfolio can push non-trading activities past the 20% level HMRC treats as substantial. Third, consider transfers to a spouse or civil partner, who has an independent £1,000,000 limit but must satisfy every condition personally for the full qualifying period, so a transfer weeks before completion achieves nothing.

Claims are made through the self-assessment return, by the first 31 January falling more than 12 months after the end of the tax year of disposal. For a disposal in 2026/27 the deadline is 31 January 2029.

Planning a disposal usually means tidying the company's own tax position first, and our guide to the company's corporation tax position covers what that involves.

Frequently Asked Questions

What is the difference between BADR and Investors' Relief?

Business Asset Disposal Relief applies to shareholders who are officers or employees of the company and hold at least 5% of the ordinary share capital. Investors' Relief applies to external investors who subscribed for newly issued shares in cash, hold them for at least three years, and are generally not employees or directors. Both give an 18% capital gains tax rate on £1,000,000 of lifetime gains.

Is entrepreneurs' relief the same as Business Asset Disposal Relief?

Yes. Entrepreneurs' relief was renamed Business Asset Disposal Relief in April 2020. It is the same relief with the same single £1,000,000 lifetime limit, so any gains relieved under the old name count towards that limit. The rate has since changed, rising from 10% to 14% in April 2025 and to 18% from 6 April 2026.

Do I need to own 5% of a company to claim Investors' Relief?

No. Investors' Relief has no minimum shareholding percentage, so an investor holding 1% or less can claim in full. The requirements are different: the shares must be ordinary shares newly subscribed for in cash in an unlisted trading company on or after 17 March 2016, held for at least three continuous years, with the investor generally not an employee or director.

Can I claim BADR and Investors' Relief in the same tax year?

Yes, provided you hold separate blocks of shares that each independently satisfy their own conditions. The two reliefs have separate £1,000,000 lifetime limits, so up to £2,000,000 of gains can be relieved at 18% in total. A single block of shares cannot qualify for both, because the employment conditions are mutually exclusive.

What is the deadline for claiming BADR on a 2026/27 disposal?

The claim must be made by 31 January 2029 for a disposal in the 2026/27 tax year, being the first 31 January falling more than 12 months after the end of that tax year. Claims are made through the self-assessment return. Missing the deadline forfeits the relief entirely, even where every qualifying condition was satisfied.

How Blue Tick Can Help

Blue Tick Accountants reviews shareholdings ahead of a sale to establish which relief each block of shares qualifies for, identifies conditions at risk of failing, and quantifies the tax at stake before terms are agreed. Getting share classes, board roles and trading status right takes years rather than weeks, so the review needs to happen early. Head to our website and book a meeting now.

Conclusion

The relief available on your shares depends almost entirely on whether you work in the company, and the answer determines a difference of six percentage points on every pound of gain. Founders and directors look to Business Asset Disposal Relief, outside subscribers to Investors' Relief, and a small number of people can access both across separate holdings. Review your share register and your board history now, because the two-year and three-year qualifying periods mean the decisions that protect the relief have to be made long before a buyer appears.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, shareholders, landlords and the self-employed across the UK. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.