What is Investors' Relief and how is it different from BADR?

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Investors' Relief is a Capital Gains Tax relief that is often confused with Business Asset Disposal Relief (BADR) because both offer the same reduced rate, but it targets a completely different type of shareholder. **Who Investors' Relief is for** BADR is designed for owner-managers who work in the business they are selling shares in. Investors' Relief, by contrast, is aimed at external, largely passive investors who subscribe for new ordinary shares in an unlisted trading company but are NOT an officer or employee of that company (with limited exceptions for unremunerated directors in some cases). This makes it relevant to business angels and private investors backing companies they do not personally run. **Key qualifying conditions** - Shares must be newly issued ordinary shares subscribed for cash, not shares bought second-hand from another shareholder - The company must be an unlisted trading company (or holding company of a trading group) - Shares must have been held continuously for at least 3 years from 6 April 2016 - The investor (and generally certain connected people) must not be an employee of the company, though unpaid/unremunerated directors can sometimes still qualify **The rate and lifetime limit** Investors' Relief now shares the same 18% CGT rate as BADR (aligned upward in stages alongside BADR's own rate increases), applied to qualifying gains up to a separate £10 million lifetime limit that used to apply before being reduced -- note this limit has itself been cut over time in recent Budgets, so investors should check the current cap rather than assume the historic £10 million figure still applies in full going forward. **Worked example** An angel investor subscribes for £200,000 of new shares in an unlisted UK trading company in 2022, holds them through the qualifying 3-year period and beyond, and is not an employee or director of the company. When the company is later sold and her shares are worth £1.2 million, her £1 million gain qualifies for Investors' Relief at 18% (£180,000 tax) rather than the standard 24% higher rate (£240,000) -- a £60,000 saving -- provided she claims the relief on her Self Assessment return. **Why the distinction matters** Because BADR and Investors' Relief have separate lifetime limits, a founder who is also both an employee-shareholder (using BADR on their own shares) and has separately subscribed for shares as a passive investor in an unrelated company could in principle benefit from both reliefs on different disposals, though the specific conditions for each must be independently satisfied -- getting the classification wrong (for example, claiming BADR when you are not genuinely an officer/employee, or Investors' Relief on shares bought second-hand rather than newly subscribed) can result in HMRC denying the claimed relief and charging the standard CGT rate instead.

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