HMRC’s capital gains tax investigations soar to new highs
The number of investigations into capital gains tax (CGT) rose by 26% last year, netting HMRC £266 million from Brits who had underpaid.
The taxman closed 9,800 investigations in 2024/25, up from 7,800 the previous financial year, according to new Freedom of Information (FOI) figures – the highest number of investigations in a tax year since the Covid pandemic.
Of those whose claims were probed, the average amount of underpaid tax rose from £23,333 to £27,142.
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The total tax taken by HMRC following investigations increased by 46% year-on-year, from £182 million in 2023/24, the FOI figures obtained by tax and accountancy firm Lubbock Fine revealed.
Rachael Griffin, tax and financial planning expert at wealth manager Quilter, said the figures suggested “investors, landlords and business owners should not assume capital gains tax reporting slips under the radar”.
Griffin added: “At the same time, HMRC has significantly improved its ability to identify discrepancies through increased data sharing and digital reporting.
“Investment platforms, estate agents, conveyancers and other financial institutions provide information that can be cross-checked against tax returns, making it increasingly difficult for gains to go unreported.”
An HMRC spokesperson said: “We’re committed to helping people pay the right amount of tax, and the vast majority do. We take a variety of approaches to ensure all taxpayers are aware of their obligations and pay what they owe at the right time.”
Why people are being investigated over their capital gains
The uptick in CGT investigations comes after the annual exempt amount was reduced from £6,000 to £3,000 in April 2024. It was reduced from £12,300 to £6,000 in April 2023.
Griffin said: “Far more people now have a potential reporting obligation, including those who may never previously have had to think about CGT. As a result, some individuals may be finding themselves caught out simply because they are unaware of the rules.”
Lubbock Fine said HMRC was also cracking down on cryptocurrency investors, some of whom might not be aware crypto assets are taxable.
Graham Caddock, director at Lubbock Fine, said: “Cryptocurrencies were renowned for being the ‘wild west’ of investing. For many crypto investors this categorisation has stuck and many underestimate how seriously HMRC treats undeclared gains.
“Even worse, some crypto investors think that gains made through digital assets somehow sit outside the normal tax rules, which is exactly why HMRC is targeting the sector so aggressively.”
Lubbock said a lot of retail investors and young day traders were unaware selling shares could trigger a CGT bill as well.
How to avoid being investigated over your capital gains
First, it’s worth making sure you report any gains correctly.
Caddock, from Lubbock Fine, said: “Many CGT enquiries start because of basic errors such as failing to get an independent valuation (perhaps more than one) for such things as gifts of family company shares or even property.”
If you have had to input estimates in the value of assets when you report your capital gains, it’s worth explaining why too.
“This may avoid an enquiry altogether, and the disclosure will help limit HMRC’s ability to enquire into earlier tax periods,” Caddock explained.
Charlene Young, senior pensions and savings expert at investment platform AJ Bell, said lots of people come unstuck when it comes to reporting gains on property.
Young said: “While gains made on your main residence are usually exempt from CGT, profits on second homes must be declared and the estimated tax paid within 60 days of completion to avoid penalties and further investigation.
“HMRC can use data from the Land Registry, banks and estate agents to cross-reference what it has been told by taxpayers, or what it suspects hasn’t been declared.”
It’s also worth making full use of your annual £20,000 ISA allowance where possible. Gains made from investments held in a stocks and shares ISA are shielded from CGT.
