Investors encountered potential penalties for Capital Gains Tax due to the outdated HMRC system following the increase of mid-year rates.

In a move that could impact thousands of UK investors, the Chancellor Rachel Reeves raised Capital Gains Tax (CGT) rates in her October 2024 budget. The new rates, which took effect from the 30th of October, have resulted in a series of changes that could lead to unexpected fines and interest charges for many taxpayers.

The new CGT rates have seen the basic-rate taxpayers' rate lifted from 10% to 18%, while higher-rate taxpayers now face a rate of 24%, up from 20%. Additionally, the annual CGT exemption was halved from £6,000 to £3,000 in April 2024, potentially affecting more first-time taxpayers.

Cryptocurrency traders may find these changes especially confusing due to high transaction volumes and allocation difficulties. The Institute of Chartered Accountants in England and Wales (ICAEW) has predicted that errors may not come to light until January 2026.

HMRC claims to have provided sufficient tools for taxpayers to get their calculations correct, including a CGT calculator and guidance. However, HMRC's self-assessment platform still applies the old CGT rates automatically, which could lead to incorrect calculations.

HMRC's penalties for careless errors in CGT calculations can reach up to 30% of the tax due, plus late payment interest at 8%. The organisation has already begun sending "nudge" letters to taxpayers who may have miscalculated their bills.

Experts advise anyone selling shares, property, or crypto assets in the 2024-25 tax year to double-check calculations and seek professional advice if uncertain. Gibbs, a prominent financial advisor, stated that unless HMRC improves its systems, similar problems will persist whenever rates change mid-year.

With more than 378,000 people paying CGT in the previous tax year, suggesting tens of thousands could be affected, it is crucial for investors to stay vigilant and accurate in their CGT calculations. Those filing tax returns for 2024-25 should not rely on the system's automatic calculations and instead use HMRC's online CGT calculator to ensure accuracy.

As the 2025 tax season approaches, it is essential for investors to be aware of these changes and take the necessary steps to avoid potential fines and interest charges. The HMRC has emphasized the importance of accurate application of the new rates and updated reporting requirements for capital gains calculations.