Over the past year, HM Revenue & Customs (HMRC) has been tightening the net around Capital Gains Tax (CGT), with compliance activity surging at an unprecedented rate.
In fact, the number of CGT cases investigated in the last tax year jumped dramatically, rising from fewer than 5,000 in 2022/23 to over 14,000 in 2023/24.
It is a reminder that HMRC has set its sights firmly on this area, and individuals or businesses disposing of assets should take note.
Why has Capital Gains Tax moved into the spotlight?
There are several reasons why CGT is now one of HMRC’s key areas of focus:
- Falling tax-free allowances – As of April 2024, the CGT annual exemption for individuals has been slashed to £3,000, and to £1,500 for trusts. This lower threshold means more people will find themselves facing a CGT bill.
- Pressure to bolster public finances – The Government is keen to maximise revenue streams, and HMRC is under clear instruction to pursue potential underpayments, particularly from wealthier taxpayers, property owners, and investors.
- Access to more data – HMRC’s information-gathering capabilities have expanded significantly, particularly when it comes to digital assets. It can now retrieve data from cryptocurrency exchanges, making it much harder to keep undeclared gains under the radar.
What do the figures reveal?
Despite the threefold increase in CGT investigations, the additional tax collected rose by a comparatively modest margin, from £180.8 million to £202.4 million year on year.
This suggests HMRC is reviewing a broader range of cases but continues to focus on those with potentially larger liabilities.
Criticism from MPs regarding HMRC’s handling of tax evasion has likely spurred the department to ramp up its compliance efforts, particularly in relation to CGT.
Who should be paying extra attention?
HMRC’s crackdown is far-reaching, but certain groups are more likely to be affected:
- Landlords and second property owners – Selling rental properties or holiday homes often triggers capital gains, making these individuals prime candidates for review.
- Crypto investors – HMRC’s enhanced access to cryptocurrency transaction data increases the likelihood of undeclared crypto gains being uncovered.
- High-net-worth individuals – Those with diverse asset portfolios may be particularly exposed, given the potential value of recoverable tax.
Steps to keep on the right side of HMRC
With compliance checks on the rise, ensuring your tax affairs are in order is a must. Here’s how to stay ahead:
- Maintain detailed records – Document all relevant information about asset acquisitions, costs, enhancements, and disposals.
- Take advantage of reliefs – Reliefs like Business Asset Disposal Relief (BADR) remain available but note that from April 2025, the BADR rate will increase from 10 per cent to 14 per cent – something to bear in mind when planning disposals.
- Declare crypto gains – Even smaller profits must be reported. HMRC’s improved access to crypto exchange data means there is little room for oversight.
- Plan disposals strategically – Timing can make a big difference, particularly with recent and upcoming changes to CGT rates and reliefs.
If you are unsure whether you are fully compliant or need advice on how best to manage future asset sales, our team is ready to assist.
Contact us today to safeguard your CGT position and ensure you are prepared for any HMRC inquiry.