HM Revenue & Customs (HMRC) has intensified its efforts to track down unpaid Capital Gains Tax (CGT), with recent figures showing an increase in compliance activity.

The number of completed CGT investigations more than trebled in the last tax year, rising from 4,564 cases in 2022/23 to 14,223 cases in 2023/24.

For individuals and businesses, this sharp increase is a clear signal that HMRC is taking CGT compliance more seriously than ever, and the risk of being selected for investigation has grown.

Of all the tax liabilities to focus on, why Capital Gains Tax?

There are several factors behind HMRC’s clampdown.

Government pressure on HMRC to improve tax compliance and raise revenue is a key factor.

Wealthy individuals, property owners, and investors are key target groups, as CGT represents a significant source of potential revenue.

Because the CGT allowance is now lower, more people will have to pay tax when they sell assets.

From April 2024, the CGT annual exemption halved to £3,000 for individuals and £1,500 for trusts, down from £6,000.

With more taxpayers liable for CGT, HMRC is keen to collect every penny.

Additionally, HMRC has increased its information-gathering powers, including access to data from crypto exchanges.

This allows the authority to cross-check asset sales and identify undeclared gains more effectively.

Are you at risk from a Capital Gains Tax investigation?

Certain groups are under increased scrutiny from HMRC with regards to CGT.

Buy-to-let landlords and individuals who own a second home are the obvious targets, given that property sales often result in sizeable gains.

Other groups at risk of increased investigation include:

• Investors disposing of shares or business assets: After the October Budget, higher and additional rate taxpayers now face 24 per cent CGT on these disposals.
• Crypto asset holders: HMRC’s access to crypto exchange data makes undeclared gains far more visible.
• High-net-worth individuals: Wealthier taxpayers, often holding diverse assets, could be at a greater risk of investigation due to the amount of tax HMRC could recover.

How can you stay compliant?

With HMRC ramping up investigations and rates rising, it is important to make sure your CGT affairs are in order:

• Keep accurate documentation – Maintain clear records of asset purchases, associated costs, improvements, and sales.
• Use available reliefs and allowances – While the CGT annual exemption has been reduced, reliefs such as Business Asset Disposal Relief (BADR) are still available. However, note that the BADR rate is set to rise from 10 per cent to 14 per cent from April 2025, increasing the tax cost of qualifying disposals.
• Report crypto disposals – Even if profits are small, HMRC may easily identify undeclared crypto gains due to its expanded access to crypto exchange data.
• Plan disposals carefully – Consider the timing of asset sales in light of the recent rate increases and the upcoming rise in BADR rates, to minimise your tax liability.

Managing your tax liabilities can be complex, especially in the face of changing regulations.

Our expert tax team can help you understand your obligations, explore available reliefs, and plan long-term strategies for maximising your tax position.

Contact us today for tailored advice on managing Capital Gains Tax.