Business Asset Disposal Relief – have you exceeded the limit?

Date posted: 8th Aug 2023

HMRC have sent out ‘One to Many’ nudge letters to taxpayers who they believe may have claimed Business Asset Disposal Relief (BADR) in excess of the lifetime limit.

This is most likely to be seen where a person has used some of the relief on more than one occasion.

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, you sell your shares in the company. It can apply when your company is liquidated, but advice will be needed in relation to timing.

The letters

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 have 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 immediately – 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.

Keep records

If you have claimed BADR, it is important than you keep a record of claims made. It is also prudent to check future claims against the remaining limit to ensure that lifetime claims are within the lifetime limit.

As ever, if you have any queries regarding the sale of a business and the taxes arising, please give us a call.

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