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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Losses: deduction for post-employment liabilities

TCGA92/S263ZA (3)

Section 263ZA (3) (and previously FA95/S92) allows certain qualifying expenditure incurred by a former employee to be treated as an allowable loss for CGT purposes if it cannot be set off against income. Broadly, such expenditure will be incurred in meeting liabilities arising from the former employee’s acts or omissions at work, or in insuring against such liabilities. The individual must claim the benefit of Section 263ZA(3).

The allowable loss which arises is limited to the lower of

  • the amount of the deductible payment claimed which cannot be deducted in computing individual’s net income for the year. (See S555(6) ITEPA03)


  • the net amount of the individual’s chargeable gains for the year (disregarding the annual exempt amount, losses brought forward, and relief under Sections 261B or 261D).

This limitation ensures that excess qualifying expenditure cannot be converted into a capital loss to carry forward.

An example of the effect of a claim under Section 263ZA(3) is at CG15804.

Relief is available in respect of qualifying expenditure incurred on or after 6 April 1995.

With effect for payments made on or after 12 January 2009 ITEPA03/S556A prevents a deduction under ITEPA03/S555 where the payment is made in pursuance of arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax, see EIM30532. Where ITEPA03/S556A applies to prevent a deduction that payment cannot be treated as an allowable loss for CGT purposes.