UK households are being warned to exercise extreme caution when completing their tax returns this year, following a significant mid-year change to Capital Gains Tax (CGT) rules. Experts have labelled the adjustment a potential "banana skin" for unwary taxpayers.
What Changed and When?
The key shift occurred following the Autumn Budget on 30 October 2024. From that date, the main rates of CGT for most assets (excluding residential property and carried interest) were increased. For basic rate taxpayers, the rate rose from 10% to 18%. For higher and additional rate taxpayers, it increased from 20% to 24%.
This creates a unique complication for the 2024/25 tax year, as two different sets of rates apply depending on when an asset was sold. The timing of any transaction is now critical in determining the correct CGT liability.
A Manual Calculation Headache
The major risk for taxpayers lies in the self-assessment process. The standard self-assessment form will not automatically calculate the correct CGT liability for gains split across the two rate periods.
Elsa Littlewood, a private wealth tax partner at BDO, highlighted the danger. "Changing the CGT rates part way through the year has the potential to be a real banana skin for those completing the form," she said. "It can be particularly tricky for those doing so without professional help."
She warned that people unfamiliar with the changes could easily input incorrect information, leading to mistakes on their return. While HMRC has released a standalone calculator to help work out the adjustment, Littlewood noted it would have been preferable for this function to be integrated directly into the tax return software itself.
Risk of Penalties and Disputes
The concern now is that these complexities could trigger a wave of errors and subsequent disputes with the tax authority. Littlewood expressed hope that HMRC would not penalise individuals for minor underpayments if they used the official software, but the risk remains.
"There is a risk of mistakes being made and it could lead to a flurry of disputes with HMRC later," she cautioned. Her firm advice to all taxpayers is clear: "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."
This mid-year change places an additional burden on individuals to understand the precise dates of their financial transactions and apply the correct tax rates manually, a process that is prone to error without careful attention.
