HMRC has begun sending a second batch of “nudge” letters in May 2026 to taxpayers who claimed Business Asset Disposal Relief in their 2024/25 Self Assessment return and who, according to HMRC’s records, may have exceeded the £1 million lifetime limit.
If one of these letters has landed on your doormat, it is not an accusation of fraud — but it does need a prompt and careful response.
HMRC has run this nudge-letter exercise in successive years, and it is catching out a particular group of business owners: those who made substantial relief claims years ago, under the old, far more generous rules, and who do not realise those historic claims still count today.
What the HMRC BADR nudge letter says
HMRC’s Wealthy Team is sending these “one to many” capital gains letters in two tranches — an initial batch in January 2026, followed by a second tranche in May 2026.
The targets are individuals who made a Business Asset Disposal Relief (BADR) claim on their 2024/25 tax return and who HMRC believes have gone over, or been pushed over, the £1 million lifetime cap on qualifying gains.
There are two versions of the letter, and which one you receive matters:
- “Already Over”: HMRC’s records indicate you had already used up your £1 million lifetime limit before you submitted your 2024/25 claim. In this case, HMRC asks you to amend your return and remove the BADR claim entirely.
- “This Year”: HMRC believes your latest 2024/25 claim is the one that has tipped your cumulative lifetime total over £1 million. Here, HMRC asks you to amend the return so that the total BADR claimed across all years stays within the £1 million limit.
When the December 2024 tranche relating to 2023/24 returns went out, HMRC’s Wealthy Team wrote to around 500 taxpayers.
The Chartered Institute of Taxation has published copies of both letter templates so taxpayers and agents can see exactly what HMRC is sending, and the structure of the 2026 campaign mirrors that approach.
If you have a tax agent or accountant on record with HMRC, they will usually receive a copy of the letter too.
Recipients are asked to respond within 30 days. The key point: if you do not respond, HMRC may correct the return entries itself, or open a formal compliance check — so ignoring the letter is the worst option.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief — known as Entrepreneurs’ Relief until it was renamed by the Finance Act 2020 — reduces the rate of Capital Gains Tax you pay when you sell qualifying business assets.
It is available to individuals and trustees disposing of things like all or part of a sole trade, a partnership interest, shares in a “personal company”, or assets used by a business that has since ceased trading.
For a share disposal to qualify, the company must be your personal company (you hold at least 5% of the shares and voting rights), it must be a trading company, and you must be an officer or employee — with all of these conditions met for at least two years before the disposal.
The full HMRC guidance on Business Asset Disposal Relief on GOV.UK sets out the qualifying conditions and current rates in detail.
The £1 million BADR lifetime limit trap
Here is the crux of why these letters exist. The lifetime limit on qualifying BADR gains is currently £1 million, applying to disposals made on or after 11 March 2020. Before that date, the lifetime limit was £10 million for disposals between 6 April 2011 and 10 March 2020.
Crucially, qualifying disposals made before and after the March 2020 reduction all count towards the same cumulative total. There is no limit on how many times you can claim — only on the total gains relieved over your lifetime.
This is where well-advised, successful business owners get caught out. Someone who claimed several million pounds of relief under the old £10 million limit may assume that a fresh claim in 2024/25 is a clean slate. It is not.
Those historic claims count against the now far lower £1 million cap, which means a new claim may be invalid even though it would have been perfectly fine under the rules in place when the earlier disposals were made.
In practice, many of the taxpayers who find their Entrepreneurs’ Relief lifetime limit exceeded are people who exited a business well before March 2020 and have not revisited the rules since.
For a simple walkthrough of how the relief works, the qualifying conditions and the claim process, see our Entrepreneurs’ Relief and BADR guide.
BADR CGT rates and what an overclaim costs
The CGT rate applying to qualifying BADR gains has been rising. For disposals in the 2024/25 tax year the rate was 10%; for disposals from 6 April 2025 it is 14%; and it is set to rise again to 18% for 2026/27.
Gains above the lifetime limit are taxed at the standard CGT rates — 18% for basic rate and 24% for higher and additional rate taxpayers, following the 30 October 2024 changes.
Investors’ Relief, a separate but related relief, saw its own lifetime limit cut from £10 million to £1 million for disposals on or after 30 October 2024, with rates that mirror BADR. Importantly, Investors’ Relief has its own £1 million lifetime limit — it does not combine with the BADR limit.
What to do if you receive an HMRC BADR letter
The single most important thing is not to ignore it. With that in mind:
- Check your lifetime position. Add up every previous BADR (or Entrepreneurs’ Relief) claim across all tax years, then add your 2024/25 claim. If the cumulative qualifying gains exceed £1 million, the relief on the excess is not due.
- Amend the return if it is wrong. If you are over the limit, you will need to amend your Self Assessment BADR claim for 2024/25 to reduce or remove the relief. The deadline to amend a 2024/25 return is 31 January 2027.
- Push back if you are confident you are correct. If you have checked and believe the claim is valid and within the limit, contact HMRC using the details in the letter and explain why. HMRC’s records may not be complete — particularly for older claims made before its digital systems were fully operational — so keep detailed records of all previous claims to support your position.
- Be aware of the cost of amending. Reducing the relief means additional CGT becomes due. Late payment interest accrues daily from the original due date (31 January 2026 for 2024/25 tax). HMRC’s late payment interest rate is linked to the Bank of England base rate and has been around 8% a year in recent periods, so check the current rate when working out what you owe.
- Get a review if your history is complex. If your claim history spans the old £10 million era, involves multiple disposals, or you are not certain how earlier reliefs interact, consider having your position reviewed by a qualified tax adviser before the 30-day deadline rather than after it.
HMRC penalties for an incorrect BADR claim
The letters warn that penalties may apply where an overclaim was careless or deliberate. As a broad guide, a careless inaccuracy attracts a penalty of up to 30% of the additional tax; a deliberate inaccuracy ranges from 20% to 70%; and deliberate and concealed inaccuracies range from 30% to 100%.
Reductions are available for unprompted disclosure and full cooperation.
There is, however, an important mitigating factor here. Where a taxpayer genuinely did not know about the reduced lifetime limit — for example, because they last claimed under the old £10 million regime — this may amount to a reasonable excuse, or at least reduce a penalty significantly, potentially to nil.
HMRC has indicated it will consider reducing or waiving penalties where a taxpayer makes an unprompted disclosure, which is another reason to act before the 30-day window closes rather than waiting for HMRC to act.
The bottom line
These letters are a compliance prompt, not an allegation. But the underlying issue — historic relief claims silently eating into a drastically reduced lifetime allowance — is a genuine and easily overlooked trap, especially for business owners who exited or restructured before March 2020.
If you have received a letter, check your full claim history carefully, take advice if the numbers are not straightforward, and respond within the 30-day deadline.
HMRC BADR Letters Key Takeaways
- HMRC’s Wealthy Team is sending BADR nudge letters in two 2026 tranches — January and May — to taxpayers who claimed Business Asset Disposal Relief on their 2024/25 Self Assessment return.
- Two letter versions exist: “Already Over” (lifetime limit already breached before 2024/25) and “This Year” (the 2024/25 claim itself pushed the total over £1 million). The required correction differs depending on which you receive.
- The biggest trap is historic Entrepreneurs’ Relief claims. Disposals made under the old £10 million lifetime limit still count towards today’s £1 million cap — a fact many pre-2020 business sellers do not realise.
- You have 30 days to respond. Failing to reply allows HMRC to amend the return itself or open a formal compliance check, with late payment interest running from 31 January 2026 on any additional tax due.
- Penalties depend on behaviour. Careless errors attract up to 30%, deliberate errors more — but a genuine misunderstanding about the reduced lifetime limit may be treated as a reasonable excuse and reduce the penalty to nil.
- Co-operating quickly and fully matters: HMRC offers larger penalty reductions where the taxpayer responds promptly and explains the position honestly, which is another reason not to let the 30-day window run out.
