After rate changes, taxpayers are advised to review their capital gains tax return or risk penalty

Accountants have advised taxpayers who must report capital gains to exercise extra caution in order to avoid a penalty due to recent changes, as the self-assessment deadline is only three weeks away

Here's the method.

Taxpayers who must disclose capital gains in their self-assessment tax return this month should make sure they have used the correct rates because the 2024 - 2025 tax year has changed.

HMRC may impose a penalty if the capital gains tax (CGT) calculations are not completed correctly.

According to accounting firm BDO, the timing of any transaction will be crucial in determining how much you owe in CGT liabilities due to changes to the rates of capital gains tax made halfway through the 2024/25 tax year in the 2024 Budget.

This year's self-assessment tax return form, which is due on January 31st, won't automatically resolve this, though.

"Changing the CGT rates halfway through the year has the potential to be a real banana skin for those completing the form and can be particularly tricky for those doing so without professional help," stated Elsa Littlewood, a private wealth tax partner at BDO. The "

"The self-assessment form will not automatically calculate the right CGT liability, so there is a risk that people unfamiliar with the rate changes will unintentionally input the wrong information," she continued.

Capital gains tax rate adjustments.

The primary rates of capital gains tax that apply to asset sales (apart from residential property and carried interest) went up on October 30, 2024, the date of the Autumn Budget.

For basic rate taxpayers, the capital gains tax rate increased from 10 to 18 percent, and for higher rate taxpayers, it increased from 20 to 24 percent.

This means that in order to determine the appropriate tax rate for the self-assessment tax return that is due on January 31, 2026, taxpayers must split gains made at different dates.

In order to receive the greatest tax relief, taxpayers must also ensure that any losses and the current 3,000 annual capital gains tax allowance are applied to gains realized on or after October 30.

Accounting firm BDO noted that HMRC's self-assessment software only computes tax using the pre-Budget rates, so it is unable to accomplish this.

For instance, the following gains and losses would be computed as follows using the HMRC software.

Gains in 2024/25 = 25,000.

Losses in 2024 - 2025 = 5,000.

3,000 is the yearly CGT allowance.

Gain that is taxable is 17,000.

20 percent tax (assuming a taxpayer with a higher rate) = 3,400.

Depending on when the assets are sold, the actual capital gains tax due may be hundreds of pounds more.

Because of the rate change in the Budget, the capital gains tax bill would be 280 higher if, for example, 10,000 of the gains were made before the 2024 Budget and 15,000 after it (after October 30, 2024).

The capital gains tax bill would increase by 680 if all of the gains had been made after the budget rate change.

How to properly file your capital gains tax return.

Because of the 2024 Budget rate change, taxpayers cannot rely on HMRC's software to accurately calculate their capital gains tax for the 2024 - 2025 tax year. Instead, they should use adjustment box (51) when filing a self-assessment tax return to ensure they pay the correct amount of tax.

Additionally, taxpayers should remember to use box 54 to explain their calculations on the form. For the 2024 - 2025 tax year, HMRC has created a particular capital gains tax adjustment calculator.

Additionally, if you signed an unconditional contract prior to October 30, 2024, and it was completed after that date, you might have to include a disclosure in your tax return.

"It is useful that HMRC has released a calculator that can be used to work out the adjustment to capital gains tax, but it would have been better if this was integrated within the tax return software," stated Littlewood of BDO.

If tax returns filed with HMRC's software are inaccurate and the amount owed is small, we hope HMRC won't impose penalties. However, there is a chance that errors will be made, which could result in a wave of disagreements with HMRC down the road.

Even if you have already turned in your self-assessment form, you might want to review it to make sure everything is correct. The "