The UK tax landscape is constantly evolving, and recent mid-year adjustments to Capital Gains Tax (CGT) rates have added another layer of complexity for taxpayers.
While staying compliant is crucial, understanding these changes and the intricacies of HMRC’s self-assessment system is more vital than ever, especially for those considering completing their own returns.
Understanding the Shifting CGT Rates
The Autumn Budget of last year brought significant alterations to CGT, with many changes taking effect part-way through the tax year, rather than at the traditional start of the new tax year in April. This immediate implementation can catch many off guard.
Key Changes to Note:
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Non-Residential Property & Other Assets: For disposals made on or after 30 October 2024, the main CGT rates for assets other than residential property and carried interest saw an increase:
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The basic rate rose from 10% to 18%.
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The higher rate increased from 20% to 24%.
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Trusts and Personal Representatives: The rate for gains accruing to trusts and personal representatives also jumped from 20% to 24% for disposals from 30 October 2024.
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Residential Property: Notably, the CGT rates for residential property disposals remain unchanged (18% for basic rate taxpayers and 24% for higher/additional rate taxpayers).
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Business Asset Disposal Relief (BADR) & Investors’ Relief: These valuable reliefs are also seeing phased increases:
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From 6 April 2025, the rate will rise from 10% to 14%.
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A further increase to 18% is planned for 6 April 2026.
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Carried Interest: A new single rate of 32% will apply from 6 April 2025.
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Annual Exempt Amount (AEA): The tax-free allowance for CGT has been significantly reduced, dropping to just £3,000 for both the 2024/25 and 2025/26 tax years (a substantial decrease from £6,000 in 2023/24 and £12,300 in 2022/23).
These frequent and mid-year changes create a challenging environment for accurate tax planning and reporting.
The Pitfalls of HMRC’s Self-Assessment System for CGT
While HMRC provides online tools for self-assessment, the complexities introduced by these CGT changes can expose significant deficiencies in their system, posing a risk to DIY taxpayers. A critical issue highlighted by AccountingWEB is that the online filing service for 2024/25 tax returns and the CGT pages of the personal tax return were not updated in time to reflect these in-year rate changes.
This leads to several critical deficiencies:
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Incorrect Automated Calculations: The automatically generated CGT liability calculation in HMRC’s online system will be incorrect for disposals made on or after 30 October 2024.
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Mandatory Manual Adjustments: Taxpayers must use an interactive calculator provided by HMRC to determine the correct adjustment figure. This figure then needs to be manually entered into specific boxes (Box 51 on the SA108 form for individuals or Box 5.17B for trusts and estates). Many taxpayers, especially those who rarely deal with CGT, may be unaware of this crucial step.
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Inability to Verify Dates: HMRC cannot automatically verify if the required disposal date is reported in attachments, which is vital for applying the correct CGT rate.
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Risk of Compliance Activity and Penalties: Due to these issues, HMRC plans to send letters to taxpayers whose returns may contain errors related to these changes. This could lead to compliance checks and potential penalties if errors are not corrected.
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Separate Reporting for Property Disposals: Disposals of UK land and property are subject to a strict 60-day reporting and payment deadline, entirely separate from the main self-assessment process. Missing this deadline can result in penalties, yet many taxpayers are unaware of this distinct requirement. Furthermore, the “real time” CGT service does not cover residential property disposals.
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Reconciling Multiple Reporting Methods: If you’ve already reported and paid CGT through the 60-day property disposal service or the “real time” service, you must still include these details in your annual self-assessment return to receive credit for the tax already paid. This duplication and need for reconciliation can easily lead to errors if not handled precisely.
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Estimated vs. Actual Income: When using HMRC’s online CGT reporting services, income figures are often estimated. It’s only when you complete your final self-assessment that actual income figures are used, potentially altering your CGT liability and requiring adjustments.
Why Professional Advice is More Important Than Ever
These recent CGT changes, combined with the administrative hurdles and technical limitations within the HMRC self-assessment system, highlight the substantial risks for individuals attempting to navigate their tax obligations independently. Incorrect reporting can lead to penalties, overpayments, or unwanted compliance investigations. At MAP, we understand these complexities and stay abreast of the latest tax legislation and HMRC’s system quirks. Engaging a professional accountant can help you accurately calculate your CGT, ensure all disposals are correctly reported, and avoid common pitfalls, giving you peace of mind and ensuring compliance.
