Do you need to adjust CGT 2024/25 calculation?

The problem

At the 2024 Autumn Budget, the Chancellor increased the standard rates of capital gains tax (CGT) with effect from 30 October 2024. However, HMRC’s self-assessment software does not reflect this in-year rate change when calculating the 2024/25 CGT liability. Instead, the liability is calculated as if the standard rates applying for the period from 6 April 2024 to 29 October 2024 applied for the whole of the 2024/25 tax year.

Where someone has made a disposal on or after 30 October 2024 and their 2024/25 chargeable gains exceeded the annual exempt amount (£3,000 for 2024/25), the figure calculated by HMRC’s software is understated. To rectify this, it is necessary to calculate an adjustment to that figure to take account of the rate increase applying from 30 October 2024.

This won’t apply if the gain related to carried interest, or qualifies in full for business asset disposal relief (BADR) or investors’ relief. The rates applicable to these gains didn’t change mid-year so there won’t be an adjustment. This will only apply where the return is filed via HMRC’s Online Services. If the return is filed using commercial software, it’s likely that the publisher has already updated it with a workaround - though you should still check this.

CGT rates for 2024/25

For the period from 6 April 2024 to 29 October 2024, gains other than those relating to residential property and carried interest were taxed at 10% to the extent that income and gains fell within the basic rate band (£37,700 for 2024/25) and at 20% thereafter. From 30 October 2024, the rates were increased to 18% and 24% respectively.

The rates charged on residential property gains did not change in-year, remaining at 18% and 24% thereafter. The increase in the standard rates from 30 October 2024 brings them into line with the rates applying to residential property gains from that date.

The in-year increase in the standard rates of CGT complicates the computation for 2024/25. It is important that you are certain about dates of disposal so gains can be taxed at the correct rate.

When an adjustment is needed

The CGT liability for 2024/25 calculated by HMRC’s self-assessment tax return software will need to be adjusted where:

• the individual made a disposal on or after 30 October 2024 giving rise to a chargeable gain
• a self-assessment return is completed for 2024/25; and
• the net gains for 2024/25 (chargeable gains less allowable losses) exceed the 2024/25 annual exempt amount of £3,000.

An adjustment is not needed if the disposals made on or after 30 October 2024 arise on disposals of residential property or, as mentioned above, relate to carried interest or benefit from BADR or investors’ relief.

Work out the adjustment

HMRC has produced a calculator which can be used to calculate the adjustment. The adjustment is not simply the increase in the rate multiplied by the post-30 October gains taxable at the standard rates of CGT. This is because the annual exempt amount and any allowable losses realised in the year are allocated to secure the best result. Where gains are realised before and after 30 October 2024, the post-30 October gains are taxed at a higher rate and best use is made of the annual exempt amount and any allowable losses by setting them first against these gains.

To use the adjustment calculator, the following information is needed:

• the dates on which the disposals took place
• your taxable income
• details of any capital losses; and
• details of pension contributions and Gift Aid payments made net of basic rate tax in 2024/25.

Step by step

The basic rate band is extended by pension contributions and Gift Aid payments made net of basic rate tax. Where this is the case, to the extent that chargeable gains fall into the extended basic rate band, they are taxed at the lower rate applicable for the asset in question.

The calculator asks the user a series of questions, which must be answered to move to the next question. Enter details of gains made before 30 October 2024 and on or after that date to the extent that they do not relate to residential property, carried interest or which qualify for BADR or investors’ relief.

Residential property gains, gains relating the chargeable interest and those benefitting from BADR or investors’ relief are entered separately.

Where you have capital losses, either those realised in 2024/25 or brought forward from an earlier tax year, the adjustment calculator requires these to be entered as a single figure.

Look closely at losses

The adjustment calculator does not distinguish between allowable losses realised in the tax year and those brought forward from earlier tax years. While losses realised in a tax year must be set against gains realised in the same tax year before applying the annual exempt amount, there is no requirement to use losses brought forward at the first opportunity.

To prevent the loss of the annual exempt amount, it is only worthwhile using brought forward losses to the extent that they reduce net gains to the annual exempt amount (which for 2024/25 is £3,000). Any further brought forward losses should be carried forward for use in later tax years. Therefore, the figure for capital losses which should be entered in the adjustment calculator is the allowable losses for 2024/25 plus so much of any brought forward losses which are to be utilised in 2024/25 (which may be less than the total amount of brought forward losses available).

Finishing up

Once all the information has been entered, the calculator produces a summary screen. This presents an opportunity to check that all the figures are correct and amend them if they are not. Pressing the “continue” button takes the user to the adjustment figure.

The online self-assessment tax return contains an “adjustment to capital gains tax” box into which the adjustment figure should be entered. If a paper return is filed, the figure should be entered in Box 51 on the SA108 return.

Example. An individual disposes of shares on 2 May 2024, 11 September 2024 and 16 February 2025 which, respectively, realise a loss of £6,000, a gain of £12,000 and a gain of £18,000. They have no brought forward capital losses, and is a higher rate taxpayer.

The CGT liability for 2024/25 as calculated by HMRC’s self-assessment tax return software is £4,200 (20% ((£12,000 + £18,000 - £6,000) - £3,000)). The adjustment for the year is £360 ((24% - 20%) x (£18,000 - £6,000 - £3,000)).