HMRC has written to taxpayers who claimed BADR in their 2022/23 income tax self assessment (ITSA) tax return and either: 

• they had exceeded the lifetime limit for BADR before 2022/23, in which case the claim for 2022/23 should be removed; or
• the claim made for 2022/23 took them over the limit, in which case the claim for 2022/23 should be reduced in line with the limit. 

BADR and the lifetime limit 

The lifetime limit for BADR is £1m. It was reduced from £10m for disposals on or after 11 March 2020. Capital gains tax is payable at the rate of 10% on the sale of an asset where BADR is claimed. BADR used to be referred to as entrepreneurs’ relief. For further guidance on BADR, see ICAEW’s dedicated webpage.  

Action to take 

On receiving the letter, the taxpayer should check their claim. If they need to remove or reduce their claim, the letter states that they should amend their return. If the taxpayer believes that they are within the limit for claiming BADR, they should contact HMRC using the details given in the letter. This should be done within 30 days of the date of the letter in both cases.  

If the taxpayer does not amend their return or contact HMRC, HMRC may amend their return or open an enquiry into the return. HMRC may charge a penalty where, during the course of an enquiry, it is found that additional tax is due. 

Further information 

• Template letter where the limit was exceeded prior to 2022/23
• Template letter where the limit was exceeded during 2022/23