CG15800 - Losses: allowable losses

Quantification of loss
Calculation of loss
Use of losses – general rules
Occasions where restrictions rules apply to the use of certain losses
Special rules for quantification of losses arising before 1996-97

Losses accruing on the disposal of an asset do not usually count as “allowable losses”, and hence may not be deducted from chargeable gains, unless they have been notified to HMRC in a quantified amount.

TCGA92/S16(2A) states a capital loss will be allowable only if it is notified within the normal time limit for claims, see TMA70/Section 43(1). The notice of loss to be an allowable loss is treated as if it were a claim for relief.

There is no specific claim form. In practice, the notice may be the inclusion of details of the loss within a person’s tax return and supporting computations of gains and losses.

The deduction of an allowable loss from chargeable gains does not require a claim and does not extend the time limit for enquiring into the original loss claim.

TCGA92/S16 (1) (2)

TCGA92/S16 (1), TCGA92/S16 (2) provides that allowable losses are to be computed in exactly the same way as chargeable gains unless otherwise indicated. So if a computation results in a loss rather than a gain, the loss is allowable if a corresponding gain would have been chargeable.

TCGA92/S1, TCGA92/S1E, TCGA92/S2A

Chargeable gains of a tax year are reduced by

  • any allowable losses accruing to the person in the tax year, and
  • so far as not previously deducted, any allowable loss accruing to the person in any previous tax year.

Losses brought forward are deducted after losses accruing in the tax year and cannot reduce the net chargeable gains to below the annual exempt amount (if relevant) see CG18030 onwards. Any losses which cannot be deducted remain available for deduction in later tax years.

Relief for losses may not be given:

  • more than once in respect of the same loss, or
  • if relief has been or may be given in respect of the loss against profits or income under the Income Tax Acts, see CG15831, or
  • usually for losses carried back.

There are some exceptions to the general rule that losses cannot be carried back, these include where:

  • there are losses of the tax year in which individual dies that cannot be deducted from gains of the year (TCGA92/S62(2)), see CG30430 onwards.
  • A terminal loss claimed on the termination or expiry of a mineral lease may be carried back and deducted from certain chargeable gains accruing in earlier years (TCGA92/S202(7)), see CG71751
  • Subject to conditions, an election may be made for a loss accruing on a disposal of certain rights to deferred unascertainable consideration to be deducted from chargeable gains accruing in previous years (TCGA92/S279A(1)), see CG15080+.

For further detail where the person is chargeable to Capital Gains Tax see CG21500.

There are a number of occasions where the general rules on the use of losses is modified and restrictions may apply. The relevant section of the manual will cover the detail of the rules.

For example:

  • losses are restricted in their use if they arise from disposals to connected persons (TCGA92/S18 (3)), see CG14561;
  • chattels disposed of at a loss are assumed to be disposed of for at least £6,000 (TCGA92/S262 (3)), see CG76590+;
  • losses accruing on the disposal of an asset are restricted to the extent that any capital allowance or renewals allowance has been or may be made in respect of it (after adjusting for any balancing charge)(TCGA92/S41), see CG15400+;
  • losses accruing in disqualifying circumstances are not allowable losses (TCGA92/S16A). For individuals and others within the charge to Capital Gains Tax see CG15835. For those liable to Corporation Tax on chargeable gains, see CG40241;
  • where a qualifying business disposal that qualifies for Business Asset Disposal Relief includes both gains and losses, see CG64125,
  • where the remittance basis applies and there has been an election for foreign losses to remain allowable losses, see CG25330,
  • the disposal of an asset by a person who acquired the asset from trustees by becoming absolutely entitled to it as against the trustees together with the trustees' loss on their disposal of the asset see CG37205,
  • where there is a terminal loss on a mineral lease and it is set off against gains arising from the receipt of mineral royalties, see CG71751.
  • Losses of non-resident companies attributed under S3/TCGA92 (previously S13) which can only be set against gains of the year attributed under S3/TCGA92 gains see CG57295.
  • ATED related losses see CG73655.
  • losses accruing to a company on the disposal of shares and securities in another company are restricted if the value of those shares or securities has been materially reduced by a `depreciatory transaction'. For example by an intra-group transfer of assets other than at market value (TCGA92/S176), see CG46500+;
  • there are restrictions to the set-off of losses where a company brings a realised loss, or an asset with a potential loss, into a group, TCGA92/S184A - F and TCGA92/SCH7A, see CG47000+;
  • there are restrictions on the set-off of losses by a company where a gain accrues as part of arrangements to convert income into gains or to secure an income deduction (TCGA92/S184G to S184I), see CG44100+;

Terms such as “clogged losses” and “ring-fenced losses” are occasionally used to describe losses to which restrictions in use can apply.

For further restrictions and some specific reliefs see CG15820+;

For years before 1996-97 there was no statutory mechanism for agreeing the amount of capital losses in the absence of gains for them to be set against, except for cases falling within TCGA92/S253, see CG15830 and CG65900+. A taxpayer cannot have the quantum of a loss brought before the First tier Tribunal until such time as a gain arises against which the loss can be set. This statutory position was endorsed in the tax case Tod v South Essex Motors (Basildon) Ltd 60TC598.

Where unused losses are brought forward and set against chargeable gains in a later year, losses incurred in 1996-97 and later years must be used before losses incurred in earlier years.