The Institute of Chartered Accountants in England and Wales (ICAEW) has reported that HM Revenue and Customs (HMRC) are contacting taxpayers they believe may have overclaimed Business Asset Disposal Relief (BADR).

What is Business Asset Disposal Relief (BADR)?

BADR, formerly known as entrepreneur’s relief, is a tax relief designed to encourage business owners to sell or dispose of their business assets by offering a reduced rate of capital gains tax. However, there is a lifetime limit on the amount of gains that can qualify for BADR. As of 2024, this limit is £1 million.

Why are HMRC writing to taxpayers about this?

The ICAEW reports that HMRC is contacting taxpayers who claimed BADR on their 2022/23 tax return, where they believe the taxpayer has either exceeded the lifetime limit before 2022/23, necessitating the removal of the claim from the tax return, or where the claim on the tax return has taken the taxpayer over the limit, requiring a reduction of the claim in line with the limit.

This issue arises because the lifetime limit for disposals was reduced from £10 million on and after 11 March 2020. Taxpayers unaware of this reduction may have made claims they believe are valid but are not in accordance with the reduced limit.

What should you do if you receive a letter?

If you receive such a letter, it is important to promptly check your claim. Where an adjustment is needed, you can simply amend your tax return. If you believe your claim is valid, you need to contact HMRC within 30 days using the details provided in the letter.

Ignoring the letter may result in HMRC amending the return to discount the claim or opening an enquiry into the return. If additional tax is found to be due during the enquiry, HMRC may charge a penalty.

If we prepared your tax return, please hand the letter to us, and we will be pleased to contact HMRC on your behalf. Whatever the case, if you are unsure about what to do, please feel free to contact us, and we will be happy to assist you.

See: https://www.icaew.com/insights/tax-news/2024/jul-2024/taxpayers-may-have-exceeded-badr-limit