HMRC takes aim at CGT relief claimants

Entrepreneurs’ Relief was revamped in 2020. Aside from being rebadged as Business Asset Disposal Relief (BADR), there was no change to the underlying mechanics of the relief. However, the cumulative lifetime limit for qualifying gains was slashed from £10 million to just £1 million. This did not affect gains arising before 11 March 2020 so, for example, if a gain of £8 million had been realised on 10 March, it could qualify in full, but the unused £2 million disappeared the next day.

HMRC is concerned that taxpayers (and their advisors) may not have understood that the reduced £1 million limit had to include gains arising prior to 11 March 2020, i.e. it was a retrospective test. It is now writing to taxpayers that claimed BADR in 2020/21 that it believes fall into one of two sets of circumstances:

• more than £1 million of gains have already been subject to an ER claim prior to the change, meaning the allowance for 2020/21 was £nil; or
• where less than £1 million gains were previously subject to a claim, but the claim in 2020/21 means the limit has been exceeded, e.g. where, say, £500,000 had previously been claimed, then a claim for £1 million was made in 2020/21.

This type of “nudge” letter is usually a precursor to the opening of a formal enquiry. Anyone receiving a letter should check their BADR/ER claim history (back to 2008) to check the position, and amend their return if necessary. If they do so, there will be late payment interest, but it appears that no penalties will be charged as long as the correction is made before a compliance check is started.