Taxpayers told to check capital gains tax return or risk penalty after rate changes

Taxpayers who need to disclose capital gains in their self-assessment tax return this month should double check they have used the correct rates following a change in the 2024/25 tax year.

Failure to do the capital gains tax (CGT) calculations properly could lead to a penalty from HMRC.

Changes to the rates of capital gains tax made part-way through the 2024/25 tax year in the 2024 Budget will mean the timing of any transaction will be key to determining how much you owe in CGT liabilities, accountancy firm BDO has said.

However, this year’s self-assessment tax return form – due by a deadline of 31 January – will not automatically work this out.

Elsa Littlewood, private wealth tax partner at BDO, said: “Changing the CGT rates part way through the year has the potential to be a real banana skin for those completing the form and can be particularly tricky for those doing so without professional help.”

“There is a risk that people unfamiliar with the rate changes will unwittingly input the wrong information as the self-assessment form will not automatically calculate the right CGT liability,” she added.

Changes to capital gains tax rates

From the date of the Autumn Budget in 2024 (30 October), the main rates of capital gains tax applying to disposals of assets (apart from residential property and carried interest), increased.

The capital gains tax rate rose from 10% to 18% for basic rate taxpayers and 20% to 24% for higher rate taxpayers.

This means for the self-assessment tax return due by 31 January 2026, taxpayers need to split gains made at different dates to calculate the right rate of tax.

It also means taxpayers will need to make sure to allocate any losses and the annual capital gains tax allowance – currently £3,000 – to the gains realised on or after 30 October, in order to get the most tax relief.

HMRC’s self-assessment software cannot do this, accountancy firm BDO pointed out, it just calculates tax based on the pre-Budget rates.

For example, using HMRC’s software, the following gains and losses would be calculated as:

2024/25 gains = £25,000

2024/25 losses = £5,000

Annual CGT allowance = £3,000

Taxable gain = £17,000

Tax at 20% (assuming a higher rate taxpayer) = £3,400

The actual capital gains tax due will depend on the date of the disposal of the assets – and could be hundreds of pounds higher.

If, say in the same example, £10,000 of the gains were pre-2024 Budget and £15,000 post-Budget (after 30 October 2024), the capital gains tax bill would be £280 higher, due to the rate change in the Budget.

If all the gains were made after the Budget rate change, the capital gains tax bill would be £680 higher.

How to file the correct capital gains tax return

Because taxpayers can’t rely on HMRC’s software to accurately calculate their capital gains tax for the 2024/25 tax year – due to the 2024 Budget rate change – they should make use of adjustment box (51) when filing a self-assessment tax return, so they pay the correct amount of tax.

Taxpayers should also ensure they don’t forget to explain their calculations on the form (using box 54). HMRC has made a specific capital gains tax ‘adjustment calculator’ for the 2024/25 tax year.

In addition, you may need to include a disclosure in your tax return if you entered into an unconditional contract before 30 October 2024, which completed after that date.

Littlewood at BDO said: “It is helpful that HMRC have released a calculator that can be used to work out the adjustment to capital gains tax, but it would have been better if this was integrated within the tax return software.

“We would hope that HMRC would not charge penalties if tax returns submitted using HMRC’s software are incorrect and the amount unpaid is minor. But there is a risk of mistakes being made and it could lead to a flurry of disputes with HMRC later.

“Even if you have already submitted your self-assessment form, you may wish to go back and double check it to ensure it’s right.”