Taxpayers needing to disclose capital gains in their self-assessment tax return should take extra care this year to avoid being hit with a penalty, BDO has warned.
Changes to the rates of Capital Gains Tax (CGT) made part-way through the 2024/25 tax year will mean the timing of any transaction will be key to determining CGT liabilities. However, this year’s self-assessment form will not automatically work this out.
From the date of the Autumn Budget in 2024 (30 October), the main rates of CGT applying to disposals of assets (apart from residential property and carried interest), increased from:
- 10% to 18% for basic rate taxpayers; and
- 20% to 24% for higher rate taxpayers.
This means taxpayers need to split gains made at different dates to calculate the right rate of tax and make sure to allocate any losses and the annual exemption 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: it just calculates tax based on the pre-Budget rates. However, there is an adjustment box (51) for taxpayers to use so they pay the correct amount of tax. But taxpayers should ensure they don’t forget to explain their calculations on the form (using box 54). HMRC has made a specific ‘adjustment calculator’ available here.
In addition, taxpayers may need to include a disclosure in their tax return if they entered into an unconditional contract before 30 October 2024, which completed after that date.
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.
“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.”
