Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, can significantly reduce the Capital Gains Tax (CGT) payable when qualifying business assets are sold or otherwise disposed of, including shares in a company.
For individuals who successfully claim BADR, CGT is charged at a reduced rate of 10% for 2024–25, 14% for 2025–26, and 18% for 2026–27.
BADR typically applies when an individual disposes of all or part of a business. This may include the sale of a sole trader business, shares in a personal company, or assets used in a business after it has ceased trading. The relief is subject to a lifetime limit of £1 million, making careful planning and ongoing monitoring of claims essential. HMRC’s recent one-to-many letter campaign highlights that claims exceeding this limit are likely to be identified.
HMRC’s “one-to-many” letters
HMRC has recently written to taxpayers who claimed BADR in their 2024–25 Self Assessment return but may have exceeded the lifetime limit. There are currently two types of letters being issued:
- Lifetime limit already exceeded
- This letter is issued where the lifetime limit was exceeded before a BADR claim was made in 2024–25.
- Action: The taxpayer should amend their return and remove the claim.
- Claim causes lifetime limit to be exceeded
- This applies where the 2024–25 claim pushes total BADR claim above £1 million.
- Action: The taxpayer should amend their return so that the total claimed remains within the lifetime limit.
Response
It is important that taxpayers correct their tax return if there is an error or, if they believe their claim is correct, respond to HMRC by the deadline stated in the letter. Otherwise HMRC may amend the return or open an enquiry.
The letter also explains HMRC will charge interest on any late payment of tax and the circumstances in which they will raise a penalty.
How M+A Partners can help
For those who are uncertain about their BADR position, M+A Partners’ team of tax specialists can provide guidance on the rules and help ensure available reliefs are maximised while remaining fully compliant. The team can assist with reviewing past claims, advising on any required amendments, and providing guidance for future disposals to help minimise Capital Gains Tax liabilities.
Clients are encouraged to contact their usual M+A Partners’ representative to discuss their circumstances and obtain expert advice.
