Could you be the next in the HMRC capital gains tax crackdown that has targeted twice as many taxpayers?

Large reductions in tax-free allowances are followed by an increase in capital gains tax penalties, which catches more taxpayers off guard

In the last two years, the penalties for not informing HMRC of a capital gains tax liability have doubled, and experts say this is just the "tip of the iceberg."

During the 2024 - 2025 tax year, 350 failure to notify penalties were imposed. Compared to just 165 in 2022 - 2023, this is more, according to a Freedom of Information (FOI) request made by Financial Software Ltd (FSL).

Since the amount of gains that British citizens can enjoy before being taxed was reduced, the annual exemption amount for capital gains tax (CGT) has increased.

The capital gains tax-free allowance was lowered from 12,300 to 3,000 over the course of two tax years. It was lowered to 6,000 in 2023 - 2024 and to 3,000 in 2024 - 2025.

Additionally, the capital gains tax rate went up from 10 percent to 18 percent for lower rate taxpayers and from 20 percent to 24 percent for higher rate taxpayers as a result of adjustments made by chancellor Rachel Reeves in her 2024 Autumn Budget. These increases cover any assets sold after October 30, 2024.

FSL tax reporting analyst Alex Ranahan stated: "I find it hard to believe that only 165 failure to notify penalties were imposed in 2022 - 2023. Similarly, it's astounding that only 350 taxpayers neglected to inform HMRC that they were subject to CGT during the previous 12 months. These numbers probably represent just the beginning.

"As more people are now subject to CGT due to the reduction of the annual exempt amount to 3,000, we anticipate a more significant and commensurate increase in the penalties imposed for non-notification.

In a different piece, we examine strategies for reducing your capital gains tax.

Why would you receive a penalty for failing to notify?

There are several reasons why there could be a failure to notify penalty. Namely, if taxpayers do not tell HMRC by the appropriate deadline that:

The penalty is calculated on potential lost revenue, which is based on the amount of tax that is unpaid as a result of the failure to notify. They have sold an asset and need to make an appropriate capital gains payment. Their circumstances have changed in a way that affects their tax position. Their company is liable for corporation tax. They are liable to tax because their new business has made a profit. Their business turnover has been able to reach the VAT registration threshold. They have started a type of business that needs to register with HMRC.

However, after being informed of the failure, HMRC might lower the penalty. The type of disclosure will determine whether further reductions are made.

"After new impetus from the chancellor Rachel Reeves, people are seeing larger fines and interest penalties as HMRC looks to boost the UK's coffers," stated Michael Edwards, managing director at FSL. With the goal of raising an extra £51 billion annually by 2029, she has pledged to finance more inquiries into missing tax receipts.

"Clients will need their advisers more than ever to stay on top of their investment tax situation and potential CGT charges that may occur outside of their investment portfolios, as CGT failure to notify penalties have doubled over the past few years.