Updated Rules for Investors: Key Points About Latest Capital Gains Tax Regulations

The UK's capital gains tax (CGT) system underwent significant changes in October 2024, affecting everyone from casual investors to landlords, entrepreneurs, and those disposing of crypto assets. These changes have caused widespread confusion, with taxpayers unsure how to apportion gains accurately and accountants struggling to guide them.

The timing of a sale within the tax year has a material impact on the final bill. Before October 30, 2024, CGT rates were at relatively modest levels for both basic-rate and higher-rate taxpayers. However, after the budget, the rates increased significantly for these taxpayers.

The annual CGT allowance was halved from £6,000 to £3,000 for the 2024-25 tax year. This means that more gains could potentially be subject to tax, leading to a higher overall tax bill for many taxpayers.

To avoid potential errors and hefty penalties, taxpayers are advised to file early and allow time to identify and correct errors before the January 2026 deadline. HMRC has provided a CGT calculator to help taxpayers calculate their liabilities accurately. It is essential to use this calculator rather than relying on the self-assessment system, as HMRC's software automatically applies the old CGT rates to the entire tax year.

Identifying which sales fall before or after October 30 is particularly problematic for investors with high-frequency transactions, such as cryptocurrency traders. Taxpayers should check transaction dates carefully to ensure gains are taxed at the correct rate.

Several UK tax advisory firms and independent tax consultants have warned taxpayers to exercise caution with their 2024-25 self-assessment tax returns. They emphasise that HMRC's Self-Assessment software might not fully incorporate the capital gains tax changes implemented in October 2024.

HMRC applies strict interest and penalty regimes for late CGT payments and incorrect reporting. Penalties for "careless" errors can be up to 30% of the tax owed, while deliberate errors can result in higher penalties (up to 70%). Interest on late CGT payments can be up to 8% (variable, tied to the Bank of England base rate plus a margin).

Taxpayers should consider seeking professional advice, especially if gains are complex or involve property, crypto, or large share disposals. HMRC is also sending out "nudge letters" to individuals who declared gains after October 30, asking them to amend their returns if the wrong rate has been applied.

In conclusion, the changes to the UK's capital gains tax system require careful attention from taxpayers. By filing early, using the CGT calculator, checking transaction dates, and seeking professional advice when necessary, taxpayers can ensure they comply with the new rules and avoid potential penalties and interest charges.

Updated Rules for Investors: Key Points About Latest Capital Gains Tax Regulations