HMRC targets business owners claiming Business Asset Disposal Relief (BADR)

Shaun Davison
Shaun Davison, manager for Lovewell Blake

HM Revenue & Customs (HMRC) have announced they are reviewing the position of taxpayers who have made substantial gains during their lifetime and may have inadvertently exceeded their lifetime limit for Business Asset Disposal Relief (BADR).

Shaun Davison, manager for Lovewell Blake

Focusing on taxpayers who have claimed BADR on their 2020/21 tax returns, HMRC are sending ‘nudge letters’ to those who they believe (in accordance with the information held on their systems) may have claimed the beneficial tax relief but have exceeded the lifetime allowance, thus overclaiming relief on part/all of the declared gain.

BADR, previously known as Entrepreneurs’ Relief (ER), reduces the amount of Capital Gains Tax (CGT) a person pays on the disposal of qualifying business assets or shares in a personal company, provided certain conditions are met.

Qualifying gains are charged to CGT at the rate of 10%, which is a significant saving for higher rate taxpayers, who would otherwise pay CGT at a rate of 20%.

Individuals claiming BADR are subject to a lifetime allowance and, before 11 March 2020, the limit was set at £10 million. In the 2020 Spring Budget, BADR was subject to substantial changes and the Chancellor reduced the lifetime limit from £10 million to £1 million. The £1 million lifetime limit takes into account earlier disposals.

For example, if you claimed relief of £750k on a disposal in December 2019, you would only have £250k of the £1 million lifetime limit remaining to set against a disposal after March 2020.

HMRC are also reviewing the position for taxpayers who have sold shares in the 2019/20 tax year. Where the sales figures declared on the tax return differs from information held on their systems, HMRC are once again writing to those taxpayers asking them to check their returns.

Although taxpayers are now outside the HMRC tax enquiry window, HMRC are inviting those targeted to correct any errors relating to the share sale proceeds via HMRC’s online disclosure facility or to contact them to confirm their tax return has been completed correctly. HMRC will further consider the cases of those taxpayers who do not respond and may look to recover tax that they believe to be due.

If you have received a ‘nudge letter’ from HMRC on either of these points, we recommend you review the relevant return to check if any amendments are required and to engage with HMRC to either correct the return or confirm with them that the original is correct. If you do nothing, you may face HMRC opening a formal enquiry into your return.

Would you like us to review your CGT position, or do you require assistance with reporting errors with HMRC?

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