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HMRC internal manual

Capital Gains Manual

Individuals: losses: Relief for losses: summary of rules: unused losses

TCGA92/S2 {#IDAO12AC}(2)/ TCGA92 S3/ TCGA92/ S4B(2)

Relief for losses

Allowable losses are deducted automatically. It is not necessary for the taxpayer to make a claim for set-off of losses. But see CG15813 about the need, under Self Assessment, for taxpayers to claim that losses are allowable and the preference to be given to such losses. The treatment of losses depends on whether they are

  • losses of the same year of assessment as the gains
  • losses of earlier years of assessment
  • losses of the year of death, or
  • particular losses which may, exceptionally, be carried back from a later year of assessment, see CG15811.

 

You deduct from the total amount of chargeable gains in the year of assessment

  1. any allowable losses accruing in that year of assessment, even if the net chargeable gains thus fall below the annual exempt amount;

then

  1. any unused allowable losses brought forward from earlier years (see CG15812 and CG15813), but not so as to take the net chargeable gains below the annual exempt amount;

then

  1. excess losses carried back from the year of assessment in which the taxpayer dies but not so as to take the net chargeable gains below the annual exempt amount.

Capital Gains Tax is then charged on the excess of the net chargeable gains over the annual exempt amount, see CG18000+.

Unused losses

You must add together the allowable losses in the year of assessment and deduct them from the total chargeable gains of the year. Allowable losses which cannot be set against gains of the same year of assessment are carried forward and set against gains which arise in the future. But see CG15813 about the need, under Self Assessment, for taxpayers to claim that losses are allowable.

You utilise losses brought forward only if net gains (that is, total gains less total losses of the year) exceed the annual exempt amount for the year. Any losses brought forward which are not utilised are carried forward and set against future gains.

If the net gains are greater than the annual exempt amount, the amount of losses brought forward you use is the smaller of

  • the total losses brought forward
  • the total necessary to reduce the net gains to the level of the annual exempt amount. Any excess is carried forward.

CG15812 and CG15813 give more detail on pre-SA and SA losses.

You then deduct the annual exempt amount from the remaining net gains to give the amount chargeable to Capital Gains Tax, see CG18000+.