FLK1 · Business Law & Practice

Capital gains tax (incl. business reliefs)

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

BLP.14 — Capital Gains Tax (incl. business reliefs)

What CGT charges. Tax on the chargeable gain arising on the disposal of a chargeable asset by a chargeable person (TCGA 1992). Disposal includes sale and gift (gifts are at market value — connected persons, s.18, also use market value). Death is not a disposal: assets are uplifted to probate value, so latent gains are wiped out (s.62).

Computing the gain.

Proceeds (or market value) − allowable costs (acquisition cost, incidental costs of acquisition/disposal, enhancement expenditure) = gain.
Deduct any reliefs, then the annual exempt amount £3,000.
Apply the rate.

Rates (2026/27). Standard CGT: 18% (gains within the basic-rate band) / 24% (above). These have applied since 30 Oct 2024. Add CGT to the top of income to find which band the gain falls in.

Business Asset Disposal Relief (BADR).

Reduces the rate to 18% for qualifying disposals on/after 6 April 2026.
£1,000,000 LIFETIME limit (not per-disposal, not annual).
Qualifying: disposal of a trading business / partnership interest / shares in the taxpayer's personal company (≥5% ordinary shares + voting rights, officer/employee), held throughout 2 years to disposal.

Other CGT reliefs to know.

Rollover relief (s.152): defer gain on qualifying business assets reinvested in new qualifying assets.
Holdover/gift relief (s.165): defer gain on gift of business assets — done's base cost is reduced.
Spouse transfers: no gain/no loss (s.58).
Private residence relief (s.222): main home exempt.

Common traps.

BADR is the £1m lifetime limit and the rate is now 18% — do not state the old 10% / £10m figures.
Don't confuse BADR (CGT, £1m) with IHT Business Property Relief (now capped at a £2.5m 100% allowance from 6 April 2026, transferable between spouses).
AEA is only £3,000 — easy to overstate.
Death = uplift, no CGT; a lifetime gift is a disposal at market value.
Check which slice of income the gain sits on before choosing 18% vs 24%.

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Two individuals run a graphic-design business as a partnership. There is no written partnership agreement. One partner contributed £80,000 of the start-up capital and the other contributed £20,000. Over the first year one partner worked full time on the business while the other worked only occasionally, and the full-time partner now argues she should receive a salary for her extra work and a larger share of the £50,000 profit to reflect her capital and effort. The other partner disagrees. The partners cannot resolve the dispute and ask how the default rules of partnership law apply. Which of the following best describes the position under the default rules?

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Independent SQE1 revision notes for study — not legal advice; check primary sources before relying on any point. Exam rules are set by the SRA; see the official SQE site.