Thousands of UK taxpayers could face unexpected penalties when filing their self-assessment returns for the 2024 - 25 tax year, due to a mismatch between HMRC’s software and the mid-year changes to Capital Gains Tax (CGT) announced in the 2024 Autumn Budget.
We understand that tax compliance is already complicated enough. When software errors increase the risk of penalties through no fault of your own, it can feel overwhelming. We will now explain what you need to know about CGT, how it is normally calculated, and why this HMRC issue could affect you.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on the profit you make when you sell or ‘dispose of’ an asset that has increased in value since you acquired it. You are not taxed on the total proceeds of the sale, only on the gain - which is the difference between what you paid for the asset and what you sold it for, minus any allowable costs.
Assets that may be subject to CGT include shares and other investments, business assets, and personal possessions worth more than £6,000. CGT also applies when you sell property that is not your main residence, such as a buy-to-let, holiday home, or inherited property.
Some assets are exempt from CGT. For example, your primary home is usually exempt if it qualifies for Principal Private Residence Relief, and certain government bonds are not subject to CGT.
Who pays CGT?
CGT applies mainly to individuals who sell or dispose of assets that have gone up in value. This typically includes investors, landlords, or anyone selling valuable possessions.
It can also apply to trustees who dispose of trust assets, and to personal representatives managing the estate of someone who has passed away when assets are sold during the probate process.
Businesses, on the other hand, do not pay CGT. Instead, they pay Corporation Tax on chargeable gains.
How Is CGT normally calculated?
The calculation of CGT starts with the sale price of the asset, from which you deduct the purchase price and any allowable costs. Allowable costs can include legal fees, stamp duty, or the costs of improving the asset (for example, renovations to a property). The result is the ‘gain.’
Every individual has an annual CGT tax-free allowance, known as the Annual Exempt Amount. For the 2024 - 25 tax year, this allowance is £3,000 per person. For Trusts the Annual Exempt amount is £1,500. You only pay CGT on gains that exceed this allowance.
Once you know the taxable gain, the rate of CGT you pay depends on your income tax band and the type of asset. Before the changes announced in October 2024, the rates were 10% for basic-rate taxpayers and 20% for higher and additional-rate taxpayers. Residential property is taxed at higher rates of 18% and 28%. Trusts pay a flat CGT rate of 24% on gains exceeding the exempt amount—regardless of asset type, including residential property.
What changed in October 2024?
In the Autumn Budget, the Chancellor increased CGT rates for disposals of all assets excluding residential property and carried interest. From 30th October 2024, basic-rate taxpayers pay 18% (instead of 10%) on gains from most assets, while higher and additional-rate taxpayers pay 24% (instead of 20%). The rates for residential property - 18% and 28% - remain unchanged.
This is where the difficulty lies. HMRC’s online filing system was designed before the Budget announcement and therefore still calculates CGT at the old rates for disposals made after 30th October 2024.
What has gone wrong?
Because the system hasn’t been updated, anyone who files their tax return online without making a manual adjustment risks submitting incorrect figures. This means their return will under-report the CGT due, leaving them vulnerable to an unexpected tax bill and potential penalties.
Taxpayers who use third-party software or file paper returns are less likely to be affected, as those systems have already been updated. HMRC has issued a calculator to help people correct their returns, but not all taxpayers will realise they need to use it.
What are the risks you may face?
If your return is incorrect, HMRC may later identify the underpayment. You could then be required to pay the additional tax owed, along with interest currently charged at 8%. On top of that, HMRC has the power to issue penalties of up to 30% of the underpaid tax if the mistake is deemed ‘careless’.
Even taxpayers who get their figures right may still face some inconvenience. HMRC has already started writing to some individuals, asking them to double-check their CGT calculations. This creates additional work, as even those who filed correctly are required to confirm their figures within a set time period.
How Coles Miller can help
At Coles Miller, we offer:
If you’ve sold assets since October 2024 or are unsure whether your return reflects the correct CGT rates, contact our tax specialists today. We’ll help you avoid penalties and stay ahead of the curve.
Our private client tax specialists can take the stress out of this situation. We can review your capital gains position to ensure the correct rates and allowances are applied, giving you peace of mind that your return is accurate.
If you receive a letter from HMRC, we can help you to respond quickly and appropriately, making sure you avoid unnecessary penalties. Beyond the immediate issue of software errors, we can also provide long-term advice on managing capital gains, whether you are selling investments, property, or other assets.
Our expertise covers a wide range of situations where CGT arises. For more information about Capital Gains Tax, including any assistance you may need, visit our website where it sets out all our services.
Stay ahead of the curve
Tax rules are complex and constantly changing. The recent Budget changes and HMRC’s software problems have created a perfect storm that could catch thousands of people off guard. By acting early and seeking advice, you can make sure you only pay what you owe.
Why is this urgent?
The deadline for paper self-assessment returns is 31st October 2025, while online submissions are due by 31 January 2026. So don’t leave it until the last minute - if you’ve sold assets since October 2024, now is the time to review your position.
If you’re worried about Capital Gains Tax, please contact Coles Miller today.