HMRC has confirmed it will be contacting businesses who have exceeded their lifetime allowance for entrepreneurs' relief, now known as business asset disposal relief.

The letters will be sent to individuals whose tax returns for the year to 5 April 2020 show gains on the sale of shares that differ from the declared amount by acquiring the company.

The aim is to find out whether people should have been taxed at the higher capital gains tax rate of 20% rather than the reduced rate of 10%.

Entrepreneurs' relief underwent changes in March 2020 when Rishi Sunak reduced the lifetime limit from £10 million to £1m.

At the time, the Resolution Foundation called entrepreneurs' tax relief "the UK's worst tax break."

Speaking during the 2020 Budget, Chancellor Rishi Sunak said:

"I will do what the Federation of Small Businesses called ‘a sensible reform' and reduce the lifetime limit from £10m to £1m.

"80% of small business owners are unaffected by today's changes.

"Those reforms save £6bn over the next five years - and I'm giving most of that money straight back to business."

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