CG21520 - Individuals: losses: Relief for losses: examples 1 to 5
Example 1 - gains of the year exceed losses of the year
Example 2 – losses of the year exceed gains of the year
Example 3 – use of losses brought forward
Example 4 – use of losses where different rates apply to gains
Example 5 – use of losses where a specific restriction applies
Example 1– gains of the year exceed losses of the year
Mrs B’s chargeable gains and allowable losses for the year 2018-19 are agreed as follows.
| - | - | Amount |
|---|---|---|
| - | Gain on sale of land | £9,500 |
| - | Loss on disposal of shares | (£4,500) |
| - | Gain on sale of painting | £15,750 |
| - | Loss on sale of cottage | (£17,900) |
| A) | Add together all the gains: | - |
| - | Gain on sale of land | £9,500 |
| - | Gain on sale of painting | £15,750 |
| - | Total gains | £25,250 |
| B) | Add together all the losses: | - |
| - | Loss on disposal of shares | (£4,500) |
| - | Loss on sale of cottage | (£17,900) |
| - | Total losses | (£22,400) |
| C) | Deduct total losses from total gains | - |
| - | Total gains | £25,250 |
| - | Total losses | (£22,400) |
| - | Net gains | £2,850 |
The net gain is less than the annual exempt amount and so no tax is chargeable for the year.
Example 2– losses of the year exceed gains of the year
Mrs C’s agreed gains and losses are:
| - | Amount |
|---|---|
| Total gains | £20,000 |
| Total losses | (£25,000) |
| Net losses | (£5,000) |
The losses of £5,000 are carried forward to be relieved against future gains.
The net chargeable gains of the year are nil and no CGT is payable. The annual exempt amount is not utilised and may not be carried forward.
Example 3– use of losses brought forward
Mr D brings forward losses of £10,500 from 2017-18 to 2018-19.
In 2018-19 he has gains of £16,300 on the disposal of listed shares and losses of £3,500.
The annual exempt amount for 2018-19 is £11,700.
To compute the amount of chargeable gains assessable for 2018-19:-
- Deduct total losses of the year from total gains:
| - | Amount |
|---|---|
| Total gains | £16,300 |
| Total losses | (£3,500) |
| Net gains | £12,800 |
- Deduct the annual exempt amount:
| - | Amount |
|---|---|
| Net gains | £12,800 |
| Annual exempt amount | £11,700 |
| - | £1,100 |
- You compare this figure with the total losses brought forward and set the smaller of the two against the net gain:
| - | Amount |
|---|---|
| Amount remaining chargeable (as in 2 above) | £1,100 |
| Losses brought forward | (£10,500) |
| You take the smaller figure of £1,100. | - |
- The position can then be summarised:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | £16,300 |
| Losses of the year | (£3,500) | - |
| Losses brought forward | (£1,100) | (4,600) |
| - | - | £11,700 |
| Annual exempt amount | - | £11,700 |
| Amount chargeable to Capital Gains Tax | - | 0 |
- You have used only part of the losses brought forward. The balance is carried forward:
| - | Amount |
|---|---|
| Losses brought forward | (£10,500) |
| Used in 2018-19 | (£1,100) |
| Losses carried forward | (£9,400) |
Example 4 – use of losses where different rates apply to gains
Mr D has the following gains and losses in the 2018-19 year:
£10,000 gains on residential property (potentially chargeable at 18% or 28%)
£15,000 gains on listed shares (potentially chargeable at 10% or 20%)
£5,000 losses on other assets
Annual exempt amount for year £11,700
| - | Amount |
|---|---|
| The gains after losses of the year | £20,000 |
| Less annual exempt amount | £11,700 |
| Net chargeable gains | £8,300 |
Because the gains on residential property are potentially chargeable at higher rates the £5,000 losses would be allocated against these gains.
£5,000 of the annual exempt amount would be allocated against the remaining gains on residential property leaving a balance of £6,700 to be allocated against the gains on listed shares.
The net chargeable gains would be charged at 10% to the extent that any basic rate band remains available (see CG21000 onwards) and any excess at 20%.
Example 5 – use of losses where a specific restriction applies
Mr E has used all his basic rate band against income and realised the following gains in the year. Unused losses were also available.
2018-19
- £20,000 gains on residential property
- £15,000 gains on other land
- £3,000 gains on a connected party disposal – connection to XYZ
- £4,000 loss on a connected party disposal – connection to PQR
- £2,000 loss on listed shares
To 2017-18, £ 8,000 unused losses available to carry forward. Of this amount £2,000 losses relate to a connected party disposal – connection to XYZ.
Losses would be utilised as follows:
Losses of 2018-19
- £4,000 on connected party disposal cannot be off-set in the year and can only be carried forward (see CG14561)
- £2,000 loss on listed shares would be set against residential gains because they would attract the highest CGT rate.
Losses to 2017-18
- £2,000 on connected party disposal set against gains from disposal to same connected party
- £6,000 would be set against residential property gains because they would attract the highest CGT rate.
Overall position for 2018-19
- Residential property gains (20,000 – 8,000 – AEA 11,700) charge 300 @ 28%
- Gains on other land = charge 15,000 @ 20%
- Gains on connected party disposal (XYZ) (3,000 – 2,000) charge 1,000 @ 20%
Unused losses to carry forward
- £4,000 on connected part disposal – connection PQR
The example demonstrates the need to keep separate records for specific losses.
There will be occasions where alternative allocations of losses or AEA may chosen by a person. e.g. although a higher rate of tax applies to a gain it could be in connection with a non-UK asset and relief for foreign tax paid may need to be considered. Provided losses and the AEA are only set against gains that they are permitted to set those amounts against the person is free to choose a different allocation.