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HMRC internal manual

Capital Gains Manual

Annual exempt amount: example

The exempt amount for the year 2014-15 is £11,000. E has a chargeable gain of £10,000, allowable losses for the year of £7,000, losses brought forward of £15,000, a Section 77 gain of £2,000 as a settlor of a UK-resident trust and a Section 87 gain of £8,000 as a beneficiary of non-resident trust.

First identify those chargeable gains from which personal losses may be deducted and deduct the allowable losses of the year.

Chargeable gains from which personal losses may be deducted (10,000 + 2,000) 12,000
   
less Allowable losses of year 7,000
  5,000

Next, determine the amount of losses brought forward which can be used in the year. In accordance with CG18034, this amount is calculated by first adding to the £5,000 the lesser of—

  • the annual exempt amount of £11,000, and
  • the Section 87 gain of £8,000 (the ‘Section 2(5)(b) amount’ - personal losses may not be deducted from this attributed gain)

to arrive at the amount of the ‘adjusted net gains’, and then subtracting the annual exempt amount from the adjusted net gains.

Gains from which personal losses may be deducted less losses of the year 5,000
   
add Section 87 gain (less than AEA) 8,000
Adjusted net gains 13,000
less Annual exempt amount 11,000
Losses brought forward which can be used 2,000

Now perform the calculation set out in CG18033

Personal gains 10,000    
       
less Losses of the year 7,000    
  3,000 Losses brought forward 15,000
less Losses brought forward to be used 2,000 less Losses used 2,000
  1,000 Losses carried forward 13,000
add Attributed gains from which personal losses may be deducted 2,000    
  3,000    
add Section 87 attributed gains 8,000    
  11,000    
less Exempt amount 11,000    
Taxable amount Nil    

Note:

If the Section 87 gains had exceeded the annual exempt amount, the losses brought forward would have been deducted as far as possible (after losses of the year) from chargeable gains of £12,000 and the balance carried forward. The annual exempt amount would then go wholly against the Section 87 gains.