Five common capital gains tax errors

Capital gains tax (CGT) catches many UK taxpayers out each year. Whether you’re selling a property, shares or a business, mistakes during the disposal process can lead to unexpected tax bills, HMRC enquiries, or worse. As a Worcester-based accountancy firm, we’ve seen these errors crop up repeatedly—and they’re often preventable. Here are five common CGT pitfalls and how to avoid them.

1. Forgetting to declare gains below the CGT allowance

Many people assume that if their gain falls below the annual CGT allowance, they needn’t report it at all. That’s not quite right. For the 2024/25 tax year, the CGT allowance is £3,000—but you must still declare the transaction to HMRC on your self-assessment tax return, even if the gain is covered by this allowance.

Failure to report can trigger an enquiry and late-payment penalties. The key is simple: declare everything, then claim your allowance to reduce your taxable gain to nil.

2. Miscalculating your acquisition cost

Your CGT liability depends on the difference between what you paid for an asset and what you sold it for. Sounds straightforward, but many people overlook what should be included in the acquisition cost.

You must add stamp duty, legal fees, surveyor’s fees, and any improvement costs to your purchase price. Conversely, don’t include costs of sale or work that merely maintains the asset. If you inherited an asset before 31 December 2017, you may be entitled to use probate value as your acquisition cost, which can significantly reduce your gain.

Getting this calculation wrong is one of the most frequent mistakes we see. Always keep detailed records of all purchase-related expenses and any capital improvements you’ve made.

3. Overlooking principal private residence relief (PPR)

If you’re selling your main home, you should be entitled to principal private residence relief, which exempts the gain from CGT entirely. However, relief is denied for periods of non-occupation or where part of the property was used for business purposes.

The rules are nuanced. If you lived away for work temporarily, you might still qualify for the full exemption. But if you used one room exclusively as a home office and claimed capital allowances, you could lose relief on that portion. Similarly, if you let out part of your home, relief may be restricted. Don’t assume you automatically get 100% relief—the specifics matter.

4. Failing to report disposals of chattels and personal possessions

Many people don’t realise that CGT applies to the sale of valuable personal items: jewellery, art, antiques, or collections. As long as an item is worth more than £6,000 (the chattels exemption threshold), any gain is potentially taxable.

Chattels are often overlooked because they’re not bought with CGT in mind. However, if you’ve inherited a diamond ring or sold a valuable painting, HMRC expects the gain to be declared. Keep valuations and proof of sale, and don’t forget to include these disposals in your self-assessment return.

5. Not considering tax-planning opportunities

Finally, many taxpayers miss opportunities to reduce their CGT bill through planning. If you have realised losses on other assets, you can set these against gains to reduce your taxable amount. Losses can be carried forward indefinitely, but you must claim them within four years or lose them.

Similarly, timing matters. If you’re close to the higher rate threshold, it might be worth staggering disposals across two tax years to stay within the basic rate band (20% CGT) rather than paying 40% on higher gains.

Married couples and civil partners should also consider who owns assets. Since each person has a separate £3,000 allowance, jointly owning an appreciating asset and disposing of it in both names can effectively double your exemption.

Next steps

CGT rules are deliberately complex—partly because they’re designed to be fair, and partly because they’re old and layered with amendments. The risk of getting it wrong is real, but so is the opportunity to get it right.

If you’re planning a significant disposal, or you’re unsure whether you’ve filed correctly in previous years, it’s worth taking professional advice. A small investment now can save thousands in unexpected tax bills or penalties later.

For tailored advice, contact Severn Accounting — we’re here to help.