The Institute of Chartered Accountants in England and Wales (ICAEW) has reported that HM Revenue and Customs (HMRC) are contacting taxpayers who may have overclaimed Business Asset Disposal Relief (BADR).
What is Business Asset Disposal Relief (BADR)?
Previously known as entrepreneur's relief, BADR 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 to the amount of gains that can qualify for BADR. As of 2024, this limit is £1 million.
Why is HMRC Contacting Taxpayers?
ICAEW reports that HMRC is writing to taxpayers who claimed BADR on their 2022/23 tax return where they believe the taxpayer has either:
- Exceeded the lifetime limit before 2022/23, and thus the claim on the tax return should be removed, or
- The claim on the tax return has taken the taxpayer over the limit, requiring the claim to be reduced in line with the limit.
This situation may arise 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 a claim they believe is valid, but which is not in line 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. If an adjustment is needed, you can simply amend your tax return. If you believe that your claim is valid, you must contact HMRC within 30 days using the details provided in the letter.
Failing to take action 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 course of the enquiry, HMRC may charge a penalty.
If we prepared your tax return, please hand the letter to us and we will contact HMRC on your behalf. If you are unsure about what to do, feel free to contact us and we will be happy to assist you.
For further information, see the ICAEW's report.