Death and Personal Representatives: Liability to the date of death: Losses and annual exemption
If an individual realises an allowable loss in the part of the tax year before his or her death, those losses must be set first against any chargeable gains accruing in that period. This applies even if it reduces the net chargeable gains below the annual exempt amount for that year.
If there is an excess of allowable losses after this set off those losses may be carried back and set off against gains accruing in the three tax years before the tax year of death. The losses must be set off against gains of a later year first. Losses carried back in this way are only set off so that the net chargeable gains are reduced to the amount of the annual exemption for the year. Any losses that are not set against gains accruing before death are lost. They cannot be used by the personal representatives or the legatees.
If the loss goes back to a tax year in which taper relief is given the loss is not tapered. The loss should be set against untapered chargeable gains so that the taxpayer receives the greatest benefit from taper relief, TCGA92/S62(2B) repealed by FA 2008. The losses cannot be set against gains attributed to the individual by TCGA92/S77, TCGA92/S87 or TCGA92/S89(2).
The legislation does not provide any specific procedures or time limits for dealing with claims to carry back losses of the year of death. The normal procedures and time limits relating to claims will therefore apply.
Mrs G died on 30 September 2013. In the period 6 April 2013 to 30 September 2013 she realised chargeable gains of £1000 and allowable losses of £10,000. In the three preceding years of assessment her net chargeable gains were
- Firstly set the 2013-14 losses against her gains of that year.
|Net chargeable gains||Nil|
|Excess losses available to carry back||£9,000|
2. Set off excess losses against gains of earlier years, considering later years before earlier years. Therefore consider 2012-13 first.
|Covered by annual exemption||£10,600|
|Limit set off to||£1,400|
|Net chargeable gains||Nil|
|Allowable losses brought back||£9,000|
|Excess loss to carry back||£7,600|
3. Consider next 2011-12
Net chargeable gains of £3000 are already wholly covered by annual exemption. Therefore none of the losses brought back should be set against these gains.
4. Consider next 2010-11
|Covered by annual exemption||£10,100|
|Available to set loss against||£9,900|
As this exceeds the losses brought back of £7,600 can be used for 2010-11
|Net chargeable gains before set off||£20,000|
|less losses brought back||£7.600|
|Revised net chargeable gains for 2010-11||£12,400|
|less annual exemption||£10,100|
|Gains chargeable to tax||£2,300|
Had the chargeable gains for 2010-11 been only £10,900 so that the excess over the annual exemption was only £800 then the set off would have been limited to £800 . The benefit of the remaining losses of £6,800 (£7,600 - £800) would have been lost as these losses could not be set off against any other chargeable gains. They cannot be carried back to any earlier years. Also they cannot be carried forward to set against any gains accruing to the personal representatives or the legatees.
See SAM 90001 for guidance on the action to be taken by the responsible office and CH54200 for guidance on the time limits for making assessments.