Beware, HM Revenue & Customs (HMRC) is in the process of contacting taxpayers who may have claimed more than £1m business asset disposal relief (BADR) up to and in tax year 2022/2023.
BADR applies to qualifying gains made by individuals on disposals of assets including shares and securities in a personal trading company and the transfer of the whole or part of a business. There are various conditions that need to be satisfied if the relief is to be claimed but if it can be claimed, it does provide a valuable tax relief.
When BADR applies, capital gains tax is only payable on qualifying gains at 10% as opposed to 20%. However, this limit only applies to gains up to a lifetime limit of £1m. Previously, the limit used to be £10m.
In the tax year 2022/2023, BADR was claimed by 44,000 taxpayers on £12.5 billion of gains. HMRC is now checking the validity of many of these claims and so it is essential that taxpayers have the required information to justify them.
According to HMRC, 8% of capital gains tax collected in the 2022/2023 tax year came from gains that qualified for BADR and with tough times ahead, according to Sir Kier Starmer, HMRC will no doubt be scrutinising claims made with a view to increasing the tax already collected.
With possible increases to capital gains tax on the horizon later this year in the Autumn Budget on 30 October, it remains to be seen whether BADR will survive or alternatively, whether the lifetime limit may actually increase to soften the blow of any rate rise. It is said that BADR does little to incentivise entrepreneurs but surely a Labour government intent on growing the economy won't hike capital gains tax rates at the same time as abolishing BADR.
If you are considering selling your business or otherwise transferring assets and would like advice on BADR, please contact our tax specialists.
