HMRC have sent out nudge ‘One to Many’ letters to taxpayers who they believe may have claimed Business Asset Disposal Relief (BADR) in excess of the £1 million lifetime limit.
Nature of the relief
Formerly known as Entrepreneurs’ Relief, BADR reduces the amount of capital gains tax that is payable where a person sells all or part of their business. Where the relief applies, capital gains tax is charged at the rate of 10% on all gains on qualifying assets up to the level of the lifetime allowance, currently set at £1 million.
To be eligible for the relief, you must meet the qualifying conditions for a period of two years up to the date on which you sell your business or, where the business is operated as a limited company, your shares in the company.
The letters have been sent to taxpayers who made claims for BADR relief in their 2021/22 Self-Assessment returns and who HMRC believes have claimed BADR in excess of the £1 million lifetime limit, either because the limit had already been reached prior to 2021/22 or because the claim made in the 2021/22 tax return took the value of lifetime claims over the limit.
Taxpayers who received a letter and who had claimed BADR to which they were not entitled had 30 days in which to amend their tax return. As a result of the amendment, it is likely more tax will be due – in the absence of the relief a higher rate taxpayer would pay capital gains tax at 20% on the gains rather than 10%.
Taxpayers who think that their claim is within the £1 million limit should contact HMRC and explain why they think this is the case.
Anyone who receives a nudge letter should address it – HMRC may instigate a compliance check if the taxpayer has not amended their return or contacted HMRC. If a response remains outstanding, this should be addressed as a matter of urgency.
If you have claimed BADR, it is important than you keep a record of claims made. It is prudent to check future claims against the remaining limit to ensure that lifetime claims are within the lifetime limit.
Partner note: TCGA 1992, ss. 169H–169SA.