Under 1% of capital gains reported to HMRC’s real time tool – are you filing a self-assessment tax return unnecessarily?

Only a small proportion of taxpayers are using a service setup to simplify reporting capital gains tax and could be unnecessarily filing a self-assessment tax return when they don’t need to.

The Real Time Capital Gains Tax Service was launched by HMRC in 2017, letting users report any capital gains and pay tax due immediately, rather than having to complete a tax return.

It doesn’t apply to additional property sales but can be used to report gains from selling assets such as a business or shares and aims to reduce the amount of paperwork if you have no need to report other untaxed income on a self-assessment form to HMRC.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But a freedom of information request by Quilter has found that the service only recorded 2,602 capital gain disposals for the 2022/2023 tax year, worth £7.3 billion.

This is just 0.04% of the total capital gains tax (CGT) of £18.1bn collected by the government

The highest amount paid through the real time system was £46bn in 2021/2022 from 3,631 disposals, so there has been a large drop.

Meanwhile, the peak use of the system was in 2019/2020, according to the research, with 4,998 reports.

With the CGT allowance set to fall again from £6,000 to £3,000 in April, David Denton, technical consultant at Quilter, warns more people could face paying the tax when selling assets so it is important that taxpayers know the various ways of settling the bill.

“The data's implication is clear, there is a substantial gap in awareness of the Real Time Capital Gains Tax Service,” he says.

“The new lower CGT allowance will inevitably increase the number of taxpayers needing to report gains meaning there is a real need for the public to become aware of what they are required to do and how they can do it.”

What is the Real Time Capital Gains Tax Service?

Any profit from sold assets such as shares held outside an ISA or a business are subject to CGT.

Money could be owed to the taxman if the profits are above the CGT threshold, currently £6,000 but dropping to £3,000 in April.

There are a couple of ways to report and pay any tax owed on capital gains to HMRC. 

One method is completing a self-assessment form. But that can be a hassle if you don’t have any other untaxed income to report.

That is why HMRC launched the Real Time Capital Gains Tax Service.

Rather than having to wade through a tax return, users can just report capital gains when they happen and pay any money owed through Gov.uk.

“Using this service is optional and the gains can be reported at any time after the disposal up to 31 December after the tax year when you had the gains,” says the Low Incomes Tax Reform Group.

“For example, if you disposed of an asset and made a gain in January 2023, this would fall in the 2022/23 tax year, which ended on 5 April 2023, and you would be able to report the gain using the ‘real time’ service up to 31 December 2023.”

Why aren’t people using the Real Time Capital Gains Tax Service?

It appears that HMRC’s efforts at simplification just aren’t simple enough.

There are restrictions to using the service as it can’t be used to report capital gains from additional property sales.

Plus it is not available to third parties or agents so an accountant cant use it on behalf of a client.

The Office of Tax Simplification suggested in 2021 that HMRC should integrate these the various ways of reporting capital gains into a new single customer account “to ease the administrative burden for the 500,000 or so people who file returns of disposals in a typical year.”

Some people may just not be using the service as they have to file a return for other income anyway.

Denton says the underutilisation is a “significant missed opportunity for efficient tax reporting" without the need for full self-assessment. 

“The government faces an urgent need to enhance the visibility of this service and provide clear, accessible guidance on its use,” he adds.

“This is essential to ensure that taxpayers, particularly those navigating CGT for the first time, can fulfil their obligations with ease and confidence.”