HMRC issues urgent warning over change to tax rules this January | Personal Finance | Finance

HMRC has issued an urgent message to taxpayers over a change in the tax rules this January which could see you inadvertently paying the incorrect amount of tax.

Each January, the tax office asks people to file a self-assessment tax return, if they are liable to submit one, by midnight on January 31, to cover the preceding tax year, running from April to April.

This January, those who may owe tax covering April 6, 2024 to April 5, 2025 may need to file and submit a return.

Within that period, the government raised the rates of Capital Gains Tax, from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers (i.e. those earning £50,270 or more).

Unfortunately, HMRC has warned that its automated on-site calculator will not correctly tot up the right amount of Capital Gains Tax owed this January if you sold shares or assets (like a second property) after October 30, 2024, when the rates were changed midway through the tax year.

Changes to the rates of Capital Gains Tax made part-way through the 2024-25 tax year mean the timing of any transaction will be key to determining CGT liabilities. However, this year’s self-assessment form will not automatically work this out.

This means taxpayers need to split gains made at different dates to calculate the right rate of tax and make sure to allocate any losses and the annual exemption to the gains realised on or after October 30 in order to get the most tax relief.

HMRC warned: “People who have sold assets such as shares after October 30, 2024 need to be aware of changed rates of Capital Gains Tax for the disposal of assets when completing their Self Assessment tax return as it won’t automatically calculate the correct amount of Capital Gains Tax due.

Elsa Littlewood, private wealth tax partner at BDO, said: “Changing the CGT rates part way 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. There is a risk that people unfamiliar with the rate changes will unwittingly input the wrong information as the self-assessment form will not automatically calculate the right CGT liability.

“It is helpful that HMRC have 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.

“We would hope that HMRC would not charge penalties if tax returns submitted using HMRC’s software are incorrect and the amount unpaid is minor. But there is a risk of mistakes being made and it could lead to a flurry of disputes with HMRC later. Even if you have already submitted your self-assessment form, you may wish to go back and double check it to ensure it’s right.”