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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Losses: set off from 2010-11: losses carried forward or carried back: example

In 2005-06 an individual subscribed for shares in a trading company. In 2010-11 she claimed that the shares had become of negligible value (see CG13120) and she realised an allowable loss of £40,000. She made a claim under ITA07/S132 (see VCM70000+) to set that loss against her other income. She has income of £70,000 in 2010-11 after personal allowances. The annual exempt amount for 2010-11 is £10,100 and the basic rate band is £37,400.

She also makes the following gains and losses in the year:

  • May 2010 - gain £25,000
  • May 2010 - loss £10,000
  • July 2010 - gain £100,000.

She has an unused loss of £35,000 carried forward from 2009-10 that can be deducted from gains in 2010-11.

She died in December 2011 but had made a disposal in June 2011, realising an allowable loss of £5,000. She had no other gains or losses in 2011-12 and so the loss is carried back to 2010-11, see CG21550.

Firstly determine whether any of her basic rate band is available to set against gains in 2010-11. She has income of £80,000, less loss relief of £50,000, leaving net income of £30,000. So £7,400 of the basic rate band (£37,400 less £30,000) is unused.

She has gains totalling £125,000 (£25,000 plus £100,000) and losses (other than the £40,000 losses set off against income) totalling £50,000 (£10,000 plus £35,000 plus £5,000). Without losses or annual exempt amount £92,600 of the gain arising in July 2010 would be taxed at 28%. So it is beneficial to set losses and annual exempt amount against that gain. After deducting losses of £50,000 and the annual exempt amount the net amount of £32,500 is taxed at 28% and £7,400 at 18%. The May 2010 gain of £25,000 is taxed at 18%.

Summary

  Income Pre-23 Post 23   Total
           
    June Gains June gains    
Total income £70,000        
Less shares loss relief (£40,000)        
Net income £30,000        
basic rate band £37,400        
Unused basic rate band £7,400        
Gains   £25,000 £100,000    
Less losses     (£50,000)    
      £50,000    
Less annual exempt amount     (£10,100)    
      £39,900    
Deduct remaining basic rate          
band     £7,400    
    £25,000   £32,500  
Capital Gains Tax at   18% 18% 28%  
Capital Gains Tax payable   £4,500 £1,332 £9,100 £14,932