Business Asset Disposal Relief: officer or employee condition not met for two years (CGT)
In June 2026 Ottilie sells her entire 12% shareholding in Hartwell Trading Ltd, an unquoted trading company, making a chargeable gain of £400,000. Her shares carry 12% of the voting rights and entitle her to 12% of distributable profits and of assets on a winding up. She bought the shares from another shareholder in 2019 as a passive investor, and was first appointed as a director of the company in March 2025. She is a higher rate taxpayer, makes no other disposals in 2026/27 and has never claimed Business Asset Disposal Relief. Assume: annual exempt amount £3,000; CGT rate for higher rate taxpayers 24%; Business Asset Disposal Relief rate 18% (lifetime limit £1 million). No other relief is available.
How much capital gains tax is payable on the disposal?
Choose one answer to see the reasoning.
Worked answer
Correct answer E: £95,280
THE RULE TO REMEMBER
Business Asset Disposal Relief on shares requires a personal company (5%+) and that the seller has been an officer or employee throughout the two years before disposal (TCGA 1992 s.169I).
Business Asset Disposal Relief: officer or employee condition not met for two years (CGT)
For a disposal of shares to qualify for Business Asset Disposal Relief, certain conditions must be met throughout the two years ending with the date of disposal. The company must be a trading company and the individual's 'personal company', meaning a holding of at least 5% of the shares and voting rights with the required economic rights. The individual must also be an officer or employee of the company or a group company. Ottilie's 12% holding meets the personal company test. However, she became a director only in March 2025, about 15 months before the June 2026 sale, so she has not been an officer or employee for the full two years. The relief is therefore unavailable. Her gain of £400,000 less the £3,000 annual exempt amount leaves £397,000 taxable. As a higher rate taxpayer she pays 24%, so the tax is £95,280.
Why A is wrong: This applies the 18% Business Asset Disposal Relief rate, but she has not been an officer or employee for the required two years.
Why B is wrong: This applies the relief rate and also fails to deduct the annual exempt amount.
Why C is wrong: This uses the 14% relief rate that applied only to disposals between 6 April 2025 and 5 April 2026, and the relief is unavailable anyway.
Why D is wrong: This applies the correct 24% rate but fails to deduct the £3,000 annual exempt amount.
A little more practice done.
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