Sarah Bradford explains when an adjustment is needed to the capital gains tax figure for 2024/25 calculated by HMRC’s self-assessment return software.
In her Autumn Budget on 30 October 2024, the Chancellor announced a number of changes to capital gains tax (CGT) rates, some of which took effect immediately. This complicates the CGT calculation for 2024/25, not least because HMRC’s self-assessment calculator does not take account of the in-year tax changes.
This means that if a taxpayer has made a chargeable gain in the period from 30 October 2024 to 5 April 2025, the self-assessment calculator will give the wrong answer.
Consequently, to ensure that they pay the correct amount of tax, taxpayers will need to work out an adjustment, which they will need to take into account when filing their tax return. Fortunately, HMRC has issued a calculator which can be used to calculate the adjustment.
The changes
Prior to 30 October 2024, the standard rate of CGT was 10% to the extent to which income and gains fell in the basic-rate band (which for 2024/25 is £37,700), and 20% once the basic rate band had been used up. Higher rates applied to residential property gains and carried interest, which were taxed at 19% where income and gains fell within the basic-rate band, and at 24% thereafter.
From 30 October 2024, the standard rates were brought into line with the rates applying to residential property gains, such that where gains are realised on or after that date, they are taxed at 18% where income and gains fall in the basic rate band, and at 24% once this has been used up. The Chancellor did not make any changes to the rates applying to residential property gains.
Business asset disposal relief (BADR) charges qualifying gains up to the lifetime limit of £1m and at a lower CGT rate. For 2024/25, gains qualifying for BADR are taxed at 10%. However, unlike the standard rates of CGT, the rate was not increased from 30 October 2024; instead, the Chancellor opted to delay the increase to 6 April 2025, increasing the rate applying for BADR purposes to 14% from that date. The rate is further increased to 18% from 6 April 2026, bringing it back into line with the lower standard rate.
The problem
Taxpayers using HMRC’s self-assessment tax return software receive a calculation of their tax liability once they have completed their return. However, the software for 2024/25 does not take account of the in-year changes to the standard rate of CGT and calculates gains (other than those in respect of residential property and carried interest) as if the lower standard rate was 10% and the upper standard rate was 20% for the whole of the 2024/25 tax year. Consequently, where chargeable gains were realised after 30 October 2024 and gains for the 2024/25 tax year were more than the annual exempt amount of £3,000, the liability is understated.
To address this and to ensure that the correct amount of CGT is paid, it is necessary to adjust the figure produced by HMRC’s return calculation software. HMRC has produced a calculator which can be used to work out the amount of the adjustment. The calculator can be found on the Gov.uk website (at www.gov.uk/guidance/work-out-your-capital-gains-tax-adjustment-for-the-2024-to-2025-tax-year).
Working out the adjustment
An adjustment will need to be calculated for the 2024/25 tax year if:
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a disposal of assets was made on or after 30 October 2024;
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a self-assessment tax return was being completed for 2024/25; and
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the net gains for 2024/25 (chargeable gains less allowable losses) are more than the annual exempt amount of £3,000.
The adjustment is not simply the rate increase multiplied by the gains realised on or after 30 October 2024, as it is necessary to take into account how the annual exempt amount has been used. The annual exempt amount is set against the gains taxed at the highest rate, so unless residential property gains have been realised prior to 30 October 2024, the best use of the annual exempt amount will be against net gains realised after that date. Similarly, losses are used so as to give the best result.
Residential property gains must be reported to HMRC within 60 days of completion and the best estimate of the tax due on the gain must be paid within the same time frame. Residential property gains are taken into account in calculating the liability for the year as a whole, and the amount of any adjustment. However, any tax already paid is deducted from the amount that is due to HMRC by 31 January 2026.
Before calculating the adjustment using HMRC’s adjustment calculator, the following information should be collated:
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the dates on which the gains were realised;
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the amount of each gain;
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taxable income;
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details of any capital losses; and
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details of pension contributions and gift aid payments made net of basic rate tax.
The lower rates of CGT apply to income and gains falling within the basic rate band. To give effect to tax relief for pension payments and gift aid payments, the basic rate band is extended.
The calculator asks a series of questions, each of which must be answered to move on to the next question. The first questions concern whether the user is completing a self-assessment return, whether as an individual or as a trustee and whether capital gains were realised on or after 30 October 2024.
Having established that an adjustment is in fact needed, the user must enter details of gains other than those relating to residential interest or carried interest or which benefit from BADR or investors’ relief, both before and after 30 October 2024. Details of residential property gains and those on carried interest are entered separately, as are details of gains qualifying for BADR or investors’ relief.
Capital losses are entered as a single figure. Here, caution must be exercised as the adjustment calculator does not distinguish between those realised in 2024/25 and those brought forward from earlier years. Losses realised in 2024/25 must be set against gains realised in 2024/25 before applying the annual exempt amount. However, there is no requirement to use those from earlier years at the first opportunity, and it is only worthwhile using brought forward losses if they do not result in the annual exempt amount being wasted.
Before entering the losses figure in the adjustment calculator, where there are brought forward losses, it is important to establish how much, if any, of those losses are to be used in 2024/25. The figure entered in the capital losses box should be that for capital losses realised in 2024/25 plus any brought forward losses which are to be used in 2024/25 (which may be less than the total amount of brought forward losses).
Reporting the adjustment
The adjustment figure (not the revised liability for the year) should be entered in the box headed ‘adjustment to capital gains tax’ in the online return. If a paper return is completed, the adjustment is entered in Box 51 on Form SA108.
Example: Disposals before and after 30 October 2024
Marcus sold some shares in July 2024, realising a gain of £7,000. He sold some further shares in November 2024, realising a loss of £2,000. He also sold a beach hut in January 2025, realising a gain of £15,000. Marcus has income from employment of £75,000. He did not make any gift aid payments or pension contributions in 2024/25.
When completing his self-assessment return for 2024/25, HMRC’s software initially calculated his CGT liability at £3,400 (i.e., (20% (£7,000 - £2,000 + £15,000) - £3,000)).
The adjustment needed for the year, as per the adjustment calculator is £400. The post-30 October 2024 gain is reduced by the losses (£2,000) and the annual exempt amount (£3,000) and taxed at 24% rather than 20% as per the initial calculation. The adjustment is therefore (24% - 20%) x (£15,000 - £2,000 - £3,000).
The adjustment of £400 is added to the £3,400 initially calculated to arrive at the liability for the year of £3,800 (i.e., (20% x £7,000) + (24% x £10,000)).
Practical tip
Where capital gains were realised on or after 30 October 2024, use HMRC’s adjustment calculator to ensure that the correct amount of CGT is paid for 2024/25.
