In May 2026, HMRC’s Wealthy Team began sending a second round of “nudge” letters about Business Asset Disposal Relief (BADR). The letters go to taxpayers who claimed BADR on their 2024/25 Self Assessment. HMRC’s records suggest they may have gone over the £1 million BADR lifetime limit. This follows an initial round earlier in 2026.
The ICAEW and the Chartered Institute of Taxation have published details of the campaign. They have also published copies of the letter templates. You and your accountant can check what HMRC is actually sending.
These letters are not allegations of fraud. They are not formal enquiries either. They are a structured prompt to check your BADR claim. You have 30 days to respond. Ignoring the letter is the worst option. If HMRC gets no reply, it can correct the return itself or open a formal compliance check.
Sold a company, a partnership interest, or business assets in 2024/25? The next month is the time to make sure you are right with the lifetime limit.
Our personal tax and business tax teams work with owner-managers on disposals and exits. That includes how BADR fits with Capital Gains Tax (CGT) and wider personal tax planning. This guide explains how the lifetime limit works. It explains why old claims still count. And it explains why a BADR nudge letter is rarely as simple as it looks.
How the BADR Lifetime Limit Works
BADR cuts the effective rate of CGT on qualifying business disposals. The relief was once known as Entrepreneurs’ Relief and was renamed in 2020. For disposals on or after 6 April 2026, the BADR rate is 18%. That’s up from 10% (before 6 April 2025) and 14% (from 6 April 2025 to 5 April 2026). Both rises were confirmed in Finance Act 2025 and the Autumn Budget 2025.
If you go over the lifetime limit, gains above the cap are taxed at the standard CGT rates for that period.
The lifetime limit sits in section 169N of the Taxation of Chargeable Gains Act 1992. It is a running cap on qualifying gains across all your disposals, ever. Three things matter:
- The limit is £1 million today, for disposals on or after 11 March 2020.
- Before 11 March 2020, the limit was £10 million.
- Qualifying disposals under either limit count towards the same running total.
Each spouse or civil partner has their own £1 million limit. The limit is personal, not joint.
This is where many letter recipients get caught. A claim made in 2018 or 2019 under the old £10 million Entrepreneurs’ Relief cap still counts towards today’s £1 million BADR cap. If you used £700,000 of relief in 2018, you only have £300,000 of cap left for everything since.
The Two Types of BADR Nudge Letter
HMRC is sending two versions of the letter, depending on what its records show:
- Type 1: HMRC thinks you had already used up your £1 million lifetime limit before your 2024/25 claim was made. You are asked to amend the 2024/25 return and remove the claim.
- Type 2: HMRC thinks your 2024/25 claim has tipped your cumulative total over the £1 million lifetime limit. You are asked to amend the return so your total BADR across all years stays inside the cap.
Either way, you have 30 days to respond. The letter is not, in itself, a compliance check. It is a structured nudge. But if you don’t reply, HMRC may correct the entries on its own. Or it may escalate to a formal enquiry.
If you have an agent on record, HMRC usually copies them in. If a letter has arrived and your agent has not mentioned it, check with them.
The New 18% Rate in Context
The May 2026 nudge letters have landed at the same time as the BADR rate has gone up to 18%. The combination matters. A sale that completed just before 6 April 2026 attracted BADR at 14%. A few weeks later, the same gain attracts 18%.
A claim made wrongly under the old regime brings in the additional CGT. A claim that should have been capped does the same. Interest is added daily. Where HMRC thinks the original position was unreasonable, penalties follow.
The wider context matters too. HMRC has been tightening BADR steadily since the cut from £10 million to £1 million in March 2020. The relief is much less generous than it was. HMRC’s compliance focus on the lifetime limit reflects a simple point. In many cases, taxpayers and advisers have not refreshed their records to take account of historic claims.
Why This Is Harder Than the Letter Suggests
The letter looks simple. HMRC has done a sum. You check it, then either agree or push back. It rarely works out that cleanly.
Answering the letter properly takes work. You need a full history of every BADR or Entrepreneurs’ Relief claim you have ever made. For each one: the gain, the disposal date, the qualifying period and assets, the SA108 entries, the underlying workings. Older claims under the £10 million cap are harder still. Those papers may sit with a previous adviser, in archive, or with the buyer’s solicitors. Pulling it all together inside 30 days is a real piece of work.
Even with the paperwork in hand, the answers are rarely binary. A previous disposal may have qualified only on part of the gain. An associated disposal may need carving out. A claim HMRC has counted against you may have been withdrawn or amended. The cap is a single number. Getting to it accurately means working back through years of disposals – sometimes under rules that have since changed.
The cost of getting it wrong is real. The extra CGT comes with daily interest. Penalties can follow if HMRC thinks the original position was unreasonable. At an 18% BADR rate, a sizeable overclaim runs into five or six figures before any interest or penalty. A rushed reply either accepts a costly position, or triggers the formal compliance check the letter was meant to avoid.
A Broader Point About Records
This campaign highlights a bigger issue. The £1 million lifetime limit has been in place since March 2020. But many taxpayers and advisers don’t keep a single, running record of qualifying gains across their lifetime.
If you expect to make more disposals – a phased exit, a future holding-company sale, or a sale of business property – knowing exactly how much of the cap you have left matters. It matters for planning the next deal cleanly.
For directors or shareholders thinking about an exit in the next two to three years, the lesson is simple. Refresh your BADR position now, while there’s time. Don’t wait to find a problem inside the 30-day response window of a future BADR nudge letter.
How Hamlyns Can Help
Our personal tax and business tax teams advise owner-managers across the disposal lifecycle. That covers pre-sale structuring, BADR eligibility reviews, lifetime limit reconciliations, the CGT entries on the SA108, and post-sale planning.
If a BADR nudge letter has arrived, we can move quickly. We reconstruct your BADR history. We agree the technical position. We prepare a properly evidenced response inside the 30-day window. And we engage HMRC for you where the position is contested.
If you have had a BADR nudge letter, please get in touch. The same applies if you made a BADR claim in 2024/25 and want to be sure the position is right before HMRC writes. The cost of a handled response is small. The alternative is an HMRC amendment, an opened enquiry, or a penalty assessment further down the line.
Not sure whether a letter is genuinely from HMRC? You might also want to read our earlier guide on How to Spot and Avoid HMRC Scams.
