HMRC are sending warning letters to BADR (formerly Entrepreneur’s Relief) claimants who they believe may have exceeded their lifetime allowance on their 2021/2022 tax returns.

BADR can be a valuable relief by encouraging individuals to invest and grow their businesses through a handy reduction in capital gains tax (CGT) to 10% on material disposals and business assets that fall within their lifetime allowance.  To qualify, assets must have been owned for the two years ending on the date of the disposal.

A drastic change in March 2020 saw a reduction of the BADR lifetime allowance from £10 million to £1 million, resulting in unease for owners in the process of selling their business or assets.  This new ruling meant that gains after 10 March 2020 would only benefit from the reduced 10% tax rate to the extent that an individual’s historic claims for the relief were less than £1 million.

HMRC believe that this aggregational complexity may have led to errors in reporting, so they are on the look-out for an additional 10% CGT plus any late payment charges.

Those who receive a letter from HMRC regarding their 2021/22 tax returns may be asked to review their historic BADR claims as well as the return itself.

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