Twice as many taxpayers targeted in HMRC capital gains tax crackdown – could you be next?

Penalties for failing to notify HMRC about a capital gains tax liability have doubled in the past two years, according to new figures – and experts have said this could be the “tip of the iceberg”.

A total of 350 ‘failure to notify’ penalties were issued in the 2024/25 tax year. This is up from just 165 in 2022/23, a Freedom of Information (FOI) request submitted by Financial Software Ltd (FSL) has found.

The number of capital gains tax (CGT) penalties has jumped since the amount of gains Brits can enjoy before being taxed – the annual exemption amount – was slashed.

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The capital gains tax-free allowance was reduced over two tax years from £12,300 to £3,000 – having been cut to £6,000 in 2023-24 and to £3,000 in 2024-25.

Also, following changes by chancellor Rachel Reeves in her 2024 Autumn Budget, the capital gains tax rate increased from 10% to 18% for lower rate taxpayers and from 20% to 24% for those on the higher rate. These increases apply to any assets sold from 30 October 2024.

Alex Ranahan, tax reporting analyst at FSL, said: “To me, it seems simply unbelievable that only 165 failure to notify penalties were issued in 2022/23. Similarly, it’s astonishing that just 350 taxpayers failed to notify HMRC they were subject to CGT over the last year. These figures are most likely the tip of the iceberg.

“With the annual exempt amount being decreased to £3,000 and therefore bringing more people into scope for CGT, we expect a corresponding and more substantial rise in penalties issued for failure to notify.”

We look at ways to cut your capital gains tax in a separate article.

Why could you get a failure to notify penalty?

A failure to notify penalty may occur for a number of reasons. Namely, if taxpayers do not tell HMRC by the appropriate deadline that:

• 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 reached the VAT registration threshold
• they have started a type of business that must register with HMRC (for example a business that will charge excise duty)

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.

However, HMRC may reduce the penalty when they are told about the failure. Further reductions may then be made depending on the type of disclosure.

Michael Edwards, managing director at FSL, said: “People are seeing bigger fines and interest penalties as HMRC looks to boost the UK’s coffers after fresh impetus from the chancellor Rachel Reeves. She has committed to funding more investigations on ‘missing’ tax receipts, aiming to pull in an additional £5.1bn a year by 2029.

“With CGT failure to notify penalties doubling over the last couple of years, clients will need their advisers more than ever to be on top of their investment tax situation, as well as potential CGT charges that may occur outside of their investment portfolios.”