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Business Asset Disposal Relief You Forgot To Claim May Not Be Lost

ended 25. July 2026

Owner-managers who wind up a solvent company usually do it for one reason: to take the built-up profits out as capital, taxed at the reduced Business Asset Disposal Relief rate rather than as dividends. But the relief has to be claimed, and claimed on the return. A First-tier Tribunal decision dated 22 July 2026, Scott Knight v HMRC, tests what happens when it is not. The taxpayer took a capital distribution of £986,412.60 from his company in a solvent liquidation on 23 March 2021, on a 60 per cent shareholding, but did not declare it on his 2020/21 tax return, filed on 2 February 2022. HMRC's closure notice assessed Capital Gains Tax of £194,272.40 plus a penalty of £91,793.70. Only then did he seek BADR, the 10 per cent rate that applied to his 2020/21 gain, which he had never claimed. The rate has since risen to 18 per cent from 6 April 2026, still below the standard 24 per cent higher rate, so claiming it correctly still matters.

This was a strike-out hearing, so the tribunal decided only what he may argue at his appeal, not whether he actually gets the relief. It refused to strike out the BADR claim: because a closure notice concluding that the full tax is due ‘includes the conclusion that no reliefs are available’, whether BADR applies falls within the matter under appeal, even though it was left off the return. But it struck out his argument that his brother had received BADR on a materially similar distribution, holding that another taxpayer's treatment is ‘simply too far removed’, and struck out a separate double-counting argument. The buried lesson for every owner selling up is that a relief you forgot to claim is not automatically lost, and the closure-notice appeal is wider than most people assume, but you must still prove your own entitlement, and ‘my brother got it’ is worth nothing.

  1. The tribunal has said a relief you never claimed can still be argued on appeal, because a closure notice finding that tax is due carries with it a finding that no relief applies. Is that a fair second chance for an honest slip, or does it invite people to treat the tax return as a first draft?
  2. The same ruling says you cannot lean on how HMRC treated someone else, even a family member with an almost identical payout. Is that the right line to draw, and who is most exposed when a valuable relief is left off a return?
  3. What should owner-managers winding up a solvent company do to make sure a relief like BADR is claimed correctly and on time? Do you have a client whose position this ruling would change? If so, please give as much colour and detail as possible.

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Editor
Harvey Dhillon
Founder & CEO at Zmartly
Wind up a solvent company and you can take the built-up profit as capital, not dividends, at the lower Business Asset Disposal Relief rate. The relief only counts if you claim it, on the return, in the right year. One owner-manager took £986,412.60 out and left it off his 2020/21 return. HMRC billed him £194,272.40 in Capital Gains Tax and a £91,793.70 penalty. A tribunal has ruled he may still argue for the relief, because HMRC's finding that the full tax is due includes a finding that no relief applies. But being allowed to argue for a relief is not the same as getting it. That is a fair second chance for an honest slip, not a licence to treat the return as a first draft. He must prove he qualifies, and the ruling rightly threw out his point that his brother got it on a near-identical payout. Most exposed is the owner who assumed it was handled. So do not assume: declare the distribution, claim the relief on the return, keep proof you qualify.