HMRC Doubles Capital Gains Tax Penalties
HMRC has ramped up enforcement of capital gains tax (CGT) rules, issuing twice as many tax demand notices to UK households in the past year.
New data shows that 350 ‘failure to notify’ penalties were issued in 2024/25 up from 165 in 2022/23 according to a Freedom of Information (FOI) request submitted by Financial Software Ltd (FSL).
Tax analysts have warned that this is likely “just the tip of the iceberg” as more people are drawn into CGT obligations following cuts to tax-free allowances. The annual exempt amount for CGT was reduced to £3,000, significantly expanding the number of taxpayers affected.
Labour Government Boosts HMRC Enforcement
Experts say the increase in penalties is part of a broader effort by Chancellor Rachel Reeves to boost government revenues. Reeves has pledged to raise an additional £5.1 billion per year by 2029 through enhanced tax compliance and enforcement.
Michael Edwards, managing director at FSL, said: “People are seeing bigger fines and interest penalties as HMRC looks to boost the UK’s coffers after fresh impetus from the chancellor. Clients will need their advisers more than ever to be on top of their investment tax situation.”
The move reflects the Labour government’s focus on closing the tax gap ensuring that individuals and businesses pay the correct amount of tax owed to the Treasury.
More Households Now Within CGT Scope
With the lower exemption threshold, even modest asset sales are now bringing individuals into HMRC’s radar. Alex Ranahan, a tax reporting analyst at FSL, said: “With the annual exempt amount being decreased to £3,000 and therefore bringing more people into scope for CGT, we expect a corresponding and more substantial rise in penalties.”
The new threshold means that profits from selling shares, property, or valuable personal items could now trigger CGT liabilities even for those who previously fell below the threshold.
Ranahan added that many taxpayers might unknowingly fail to report gains, leading to fines that could have been avoided through better record keeping and professional advice.
What Triggers a Failure to Notify Penalty
HMRC can issue a “failure to notify” penalty if an individual or business does not inform the tax authority about a new or changed tax liability.
Common scenarios include:
- Starting a business that becomes liable for corporation tax.
- Reaching the VAT registration threshold.
- Selling assets that generate capital gains above the exempt amount.
- Experiencing changes in income or business structure that affect tax status.
Failure to report such changes on time can result in financial penalties and interest charges, with the severity depending on how late the notification is and whether HMRC believes the failure was deliberate.
Tax Experts Urge Vigilance and Professional Advice
Accountants and financial advisers are urging taxpayers to review their portfolios and recent transactions to ensure compliance.
“Clients must be proactive,” Edwards advised. “If you’ve sold shares, property, or other investments recently, confirm whether those sales generate a CGT liability. It’s far cheaper to declare and pay than to face a penalty later.”
As HMRC intensifies its scrutiny under Labour’s fiscal strategy, experts warn that the number of CGT-related investigations is expected to climb sharply over the next few years.
Preparing for HMRC’s Tougher Stance
To avoid falling foul of new enforcement trends, individuals should:
- Keep detailed records of all investment and asset sales.
- Use digital tax tools to track gains and liabilities.
- Consult professional tax advisers familiar with CGT reporting requirements.
With HMRC targeting “twice as many” taxpayers and more households falling under CGT obligations, experts agree: now is the time to get compliant before the next tax demand arrives.
