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

What is Business Asset Disposal Relief?

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

The limit at the time of writing (September 2024) is £1 million.

What are HMRC writing to taxpayers?

The ICAEW have reported 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 so the claim on the tax return should be removed, or the claim on the tax return has taken the taxpayer over the limit, and so the claim needs to be reduced to take account of the limit.

Why might this be an issue?

The lifetime limit for disposals was reduced from £10 million on and after 11th March 2020. Some taxpayers may not be aware of the reduced limit and may therefore have mistakenly made a claim that isn’t actually in line with the reduced limit.

If you receive a letter…

If one of these letters drops onto your doormat, it’s important to promptly check the claim you’ve made.

• If an adjustment is needed, you can simply amend your tax return.

• If you believe your claim is valid then you need to contact HMRC within 30 days using the details contained in the letter.

If you don’t respond, HMRC can amend your Return to discount the claim or open an enquiry into it. If they then find any additional tax is due to be paid during the course of the enquiry, they may charge a penalty.

If you’re a client and we prepared your tax return, please simply send the letter to us and we’ll contact HMRC on your behalf.

Whatever the case, if you receive a letter and are unsure about what to do, or would just like to chat through the most suitable response, please get in touch.