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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Losses: set off from 2010-11: limitations on loss set-off: example

In August 2010 an individual makes a chargeable gain of £200,000 and gifts £50,000 to a charity in the same month. In the same year he has income of £30,000 after allowances. He makes a gain of £20,000 on the disposal of an asset to his brother in May 2010 and a loss of £60,000 on the disposal of another asset to his brother in January 2011. The annual exempt amount for 2010-11 is £10,100 and the basic rate band is £37,400.

The loss that he makes on the disposal to his brother is set off against the gain he made on the other disposal to his brother. The remaining part of the loss, £40,000 (loss £60,000 less gain £20,000) is carried forward and can only be deducted against other gains made on disposals to that brother. Even though this means that the loss only secures relief at 18% (the rate at which the gain of £20,000 would otherwise have been charged), as opposed to 28% if it had been set against the gain of £200,000, the use of the loss in this way is mandatory, see CG14561.

The individual is entitled to gift aid on the gift to charity. The gift is treated as having been made after deduction of basic rate income tax at 20%. His basic rate band is extended by the grossed up amount of the payment, see CG21220. This is £62,500 (£50,000 x 100/80) and so his basic rate band becomes £99,900. Of this, £30,000 is used against income, leaving £69,900 to use against his capital gains tax liability.

The individual has gains of £69,900 charged at 18%. The annual exempt amount is set against the gains of £130,100 that would otherwise be charged at 28%, leaving £120,000 charged at 28%.


  Gift aid Basic rate Gains at Gains at Total
    band 18% 28%  
Gift £50,000        
Add basic rate tax £12,500        
Grossed up gift £62,500 £62,500      
basic rate band   £37,400      
Extended basic rate band   £99,900      
Less set against income   (£30,000)      
Available to set against gains   £69,900      
Gains at 18% equal to basic          
rate band     £69,900    
Gains at 28% (£200,000 less          
£69,900)       £130,100  
Less annual exempt amount       (£10,100)  
Chargeable gains     £69,900 £120,000  
Capital Gains Tax payable     £12,582 £33,600 £46,182

The remaining £40,000 of the clogged loss is carried forward and can be set off against gains made in later years on disposals to the individual’s brother.