Declare Capital Gains in the UK: What HMRC Really Expects and Where Taxpayers Go Wrong

Declaring capital gains is one of those areas of UK tax that looks straightforward on the surface but regularly causes problems in practice. I see this year after year with clients who assume it only applies to property investors or wealthy individuals, only to discover later that HMRC expects a formal declaration even when no tax is ultimately payable. The obligation to declare capital gains is driven by UK tax law, not by whether HMRC happens to notice a transaction.

At its core, the capital gains tax applies when you dispose of an asset and make a profit. “Dispose” is broader than many people realise. It includes selling, gifting, transferring ownership, exchanging assets, or even receiving insurance compensation for something that has been destroyed. HMRC is interested in whether a chargeable gain has arisen, not simply whether cash changed hands.

What matters most from a compliance perspective is knowing when a gain must be declared, how it should be reported, and which route HMRC expects you to use. These rules differ depending on the type of asset, the timing of the disposal, and your wider tax position.

When declaring capital gains becomes mandatory

One of the most common misunderstandings I encounter is the belief that you only need to declare capital gains if you exceed the annual exemption. While the annual exempt amount does shield a portion of gains from tax, it does not remove the reporting obligation in all cases.

For the 2024–25 tax year, the annual exempt amount for individuals is £3,000. This is a significant reduction from previous years and has caught many taxpayers off guard. If your total gains exceed this amount, you will almost certainly need to declare capital gains. However, even if your gains fall within the exemption, a declaration may still be required if the total proceeds from disposals exceed four times the annual allowance, or if HMRC specifically asks for details.

In real-world terms, someone selling shares for £20,000 that originally cost £18,000 has only made a £2,000 gain, which sits below the exemption. Yet HMRC may still expect that gain to be declared through Self-Assessment if disposal values are high or the individual is already within the tax system for other reasons.

Property disposals are treated even more strictly. UK residential property sales often require reporting within a tight timeframe, regardless of whether tax is ultimately due.

Declaring capital gains on UK property sales

If you sell or dispose of a UK residential property that is not fully covered by Private Residence Relief, HMRC requires a capital gains declaration within 60 days of completion. This applies to landlords, second-home owners, and individuals selling inherited property.

This 60-day reporting rule has been in force for several years now, but compliance remains patchy. Many taxpayers still assume they can wait until their Self-Assessment return is due. HMRC does not accept that excuse, and late filing penalties can apply even when no capital gains tax is payable.

A typical scenario involves someone inheriting a property, holding it for a short period, and then selling it. Even if the estate paid inheritance tax, the beneficiary may still need to declare capital gains based on the increase in value between probate and sale. That declaration must be made promptly using HMRC’s UK Property Account system.

Declaring capital gains through Self-Assessment

For most non-property disposals, capital gains are declared through the Self-Assessment tax return. This includes gains on shares, investment funds, crypto assets, business assets, and overseas property.

If you are already registered for Self-Assessment, capital gains are reported on the capital gains pages of the return. If you are not registered, HMRC expects you to register by 5 October following the end of the tax year in which the gain arose.

In practice, I often see clients delay registration because they believe HMRC will contact them first. HMRC rarely does. The responsibility to declare capital gains rests squarely with the taxpayer, and failure to notify can result in penalties for failure to notify, in addition to late filing charges.

Capital gains tax rates and how they affect declarations

Understanding the applicable tax rate is essential when declaring capital gains correctly. Rates depend on both the type of asset and your income tax band.

For the current tax year, capital gains tax rates are as follows:

These rates apply after deducting the annual exempt amount and any available reliefs. When declaring capital gains, HMRC expects calculations to clearly show how these rates have been applied, particularly where part of the gain falls into different income bands.

This becomes especially relevant for clients whose income fluctuates year to year. A gain realised in a year with lower income may attract a lower rate, but only if it is declared accurately and supported by correct figures.

Practical example: declaring capital gains on shares

Consider a client who sells listed shares for £50,000 that originally cost £30,000. After deducting the £3,000 annual exemption, the taxable gain is £17,000. If that client is a basic rate taxpayer with sufficient unused band, the capital gains tax due would be £1,700.

From HMRC’s perspective, the declaration must include the acquisition cost, disposal proceeds, incidental costs such as broker fees, and confirmation of how the exemption was applied. Omitting any of these details increases the likelihood of an HMRC query.

This is where many online summaries fall short. Declaring capital gains is not simply about entering a final figure; it is about showing HMRC how you arrived there.

Common errors HMRC flags when capital gains are declared

After two decades of dealing with HMRC compliance checks, certain mistakes appear repeatedly. One is failing to include allowable costs, which leads to overpaying taxes. Another is incorrectly claiming reliefs such as Private Residence Relief or Business Asset Disposal Relief without meeting the qualifying conditions.

Equally problematic is under-reporting. HMRC now receives extensive third-party data from land registries, brokers, and overseas tax authorities. Undeclared disposals are far easier for HMRC to identify than they were even five years ago.

Clients are often surprised to learn that HMRC can open an enquiry years later if a capital gain was not declared properly. The time limits for HMRC assessments are longer where carelessness or deliberate behaviour is alleged.

Declaring Capital Gains Correctly: Reliefs, Losses, Deadlines, and HMRC Enforcement

Once the basic obligation to declare capital gains is understood, the real complexity begins. In practice, most errors arise not from missing a disposal altogether, but from misunderstanding which reliefs apply, how losses should be used, and which HMRC deadlines are genuinely non-negotiable. These points often make the difference between a clean declaration and years of correspondence with HMRC.

Using reliefs when declaring capital gains

Reliefs can significantly reduce or eliminate capital gains tax, but HMRC applies them strictly. Reliefs must be claimed at the time the gain is declared, and HMRC will not assume entitlement simply because circumstances appear favourable.

Private Residence Relief is the most commonly misunderstood. It only applies where the property has genuinely been your main residence. Temporary absences, periods of letting, or partial business use can all restrict the relief. In many cases, only a proportion of the gain is exempt, meaning a capital gains declaration is still required even though the property was once a family home.

Business Asset Disposal Relief, formerly Entrepreneurs’ Relief, reduces the capital gains tax rate to 10% on qualifying business disposals, up to a lifetime limit of £1 million. Claiming this relief requires careful analysis of shareholding percentages, voting rights, employment status, and the length of ownership. I regularly see HMRC challenge claims where the paperwork does not fully support the conditions.

Other reliefs that frequently arise in declarations include:

• Lettings Relief for certain historic residential property disposals
• Rollover Relief, where business assets are replaced
• Holdover Relief on gifts of qualifying assets
• Investors’ Relief for long-term shareholdings in unlisted trading companies

Each of these must be actively claimed and supported by evidence. Failing to include the claim in the declaration can mean losing the relief entirely.

Declaring capital losses and how they reduce tax

Capital losses are a powerful but often underused tool. When you declare capital gains, HMRC expects you to offset current-year losses against gains before applying the annual exemption. Losses can also be carried forward indefinitely, but only if they are formally declared to HMRC.

A common scenario involves investors who incur losses on shares or cryptoassets and assume those losses will automatically be recognised. They are not. If losses are not reported within four years of the end of the tax year in which they arose, HMRC may refuse to allow them.

In practice, I advise clients to declare capital losses even in years with no gains. This creates a clear audit trail and preserves the ability to reduce future capital gains tax liabilities.

Declaring capital gains on inherited and gifted assets

Inheritance often confuses when it comes to capital gains. There is no capital gains tax on assets inherited from an estate, but there may be capital gains tax when those assets are later sold.

The acquisition cost for capital gains purposes is the market value at the date of death, not the original purchase price paid by the deceased. When declaring the gain, HMRC expects the probate valuation to be used, and this is an area where discrepancies can easily trigger enquiries.

Gifts are treated as disposals at market value, even where no money changes hands. Parents gifting property to children, or transferring shares to family members, frequently overlook the need to declare capital gains at the point of transfer. HMRC does not view “no cash received” as a reason to avoid declaration.

Overseas assets and the obligation to declare capital gains

UK tax residents are taxed on worldwide gains. This includes overseas property, foreign shares, and interests in offshore funds. Declaring capital gains involving overseas assets requires careful consideration of exchange rates, foreign taxes paid, and any applicable double taxation relief.

I regularly deal with cases where overseas gains were reported incorrectly because clients used average exchange rates or failed to account for acquisition costs in sterling terms. HMRC expects consistent, defensible calculations, not approximations.

For non-UK domiciled individuals, the remittance basis can alter how gains are declared, but this area is highly technical and increasingly scrutinised. Mistakes here can be costly.

HMRC deadlines and penalties for late or incorrect declarations

Deadlines are one area where HMRC shows little flexibility. For Self-Assessment, capital gains must be declared by 31 January following the end of the tax year. For UK residential property disposals, the 60-day reporting deadline applies.

Missing these deadlines can result in:

• Automatic late filing penalties
• Daily penalties for prolonged delays
• Interest on unpaid capital gains tax
• Behaviour-based penalties where HMRC considers the error to be careless or deliberate

Importantly, penalties can apply even where no tax is due, simply because the declaration itself was late.

HMRC enquiries and how capital gains are reviewed

When HMRC reviews a capital gains declaration, they typically focus on valuation, relief claims, and completeness. Requests for evidence are common, particularly for property valuations, share transactions, and business disposals.

From experience, well-prepared declarations rarely escalate. Problems arise where figures are inconsistent, reliefs are poorly explained, or disposals appear to have been omitted.

Keeping contemporaneous records, valuations, and professional advice notes is often the best defence if HMRC raises questions several years later.

Practical compliance approach used by UK advisers

In professional practice, declaring capital gains is treated as a process rather than a single form submission. Calculations are prepared separately, reliefs are cross-checked against statutory conditions, and declarations are aligned with income tax figures to ensure consistency.

This approach not only reduces tax where legitimately possible, but also significantly lowers the risk of HMRC challenge. It is the difference between simply reporting a gain and properly managing a capital gains tax position under UK law.