Capital Gains Tax Penalties Double – Are You at Risk in 2025?
More than twice as many taxpayers have been hit with penalties for failing to report Capital Gains Tax (CGT) liabilities in the last year – and with recent changes to Capital Gains Tax allowances and rates, this figure may continue to rise.
According to data obtained through a Freedom of Information (FOI) request by Financial Software Ltd (FSL), HMRC issued 350 ‘failure to notify’ Capital Gains Tax penalties in the 2024/25 tax year. That’s more than double the 165 penalties recorded just two years earlier in 2022/23.
Why the Increase?
This sharp rise in penalties follows a significant reduction in the annual Capital Gains Tax exemption amount, which has brought many more individuals into the scope of the tax.
- In 2022/23, the CGT-free allowance stood at £12,300.
- It was halved to £6,000 for 2023/24.
- And further cut to just £3,000 in 2024/25.
These changes mean more taxpayers are now liable for Capital Gains Tax, even on relatively modest gains.
On top of this, the Autumn Budget 2024 introduced an increase in Capital Gains Tax rates, effective for disposals made on or after 30 October 2024:
- From 10% to 18% for basic rate taxpayers
- From 20% to 24% for higher rate taxpayers
Together, these adjustments are significantly widening the Capital Gains Tax net.
“Just the Tip of the Iceberg”
Commenting on the figures, Alex Ranahan, Tax Reporting Analyst at FSL, said:
“It seems simply unbelievable that only 165 failure to notify penalties were issued in 2022/23… These figures are most likely just the tip of the iceberg.”
FSL expects the number of penalties to rise further as more people are caught out by the lower allowance and increasing complexity of Capital Gains Tax rules.
What Triggers a Failure to Notify Penalty?
You may be liable for a ‘failure to notify’ penalty if you do not inform HMRC that you owe tax within the required time limits. This could happen if:
- You sell an asset that triggers a Capital Gains Tax liability
- Your personal or business circumstances change in a way that affects your tax position
- Your business becomes liable for Corporation Tax
- Your turnover reaches the VAT threshold
- You start a business type that requires registration with HMRC (e.g. one that involves excise duty)
Penalties are based on the potential lost revenue – i.e. the amount of tax unpaid due to the delay in notifying HMRC. However, penalties can be reduced if you make a voluntary disclosure or co-operate with HMRC during the process.
Increased Focus from HMRC
Michael Edwards, Managing Director at FSL, added:
“People are seeing bigger fines and interest penalties as HMRC looks to boost the UK’s coffers… Clients will need their advisers more than ever to be on top of their investment tax situation.”
This is part of a broader strategy announced by Chancellor Rachel Reeves, with HMRC tasked with recovering an additional £5.1bn in ‘missing’ tax annually by 2029 through increased compliance activity.
How We Can Help
At IN Accountancy, we’re here to help you stay ahead of changes and avoid any unexpected liabilities. If you’ve recently sold an asset, or if you’re unsure whether Capital Gains Tax may apply to your situation, please do get in touch with our expert team.
We’ll work with you to review your position, ensure compliance, and minimise your exposure to penalties wherever possible.
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