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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Derivative contracts: chargeable gains on derivatives: carry back of losses: computation

Carry back of capital losses - computation

The carry-back operates by defining two amounts:

  • the net amount of CTA09/S641 losses for the loss period, and
  • the net amount of CTA09/S641 gains for the gain period.

To work out the net amount of S641 losses for a loss period, you aggregate all of the capital losses from the company’s derivative contracts for the period, and similarly aggregate all of the chargeable gains. If the total capital losses exceed the total gains, the excess is the net amount of S641 losses.

The effect of a claim under S663 to carry back losses is to reduce the S641 losses by the amount specified in the claim. Thus suppose that, for example, a company has in a period a net amount of S641 losses from property derivatives of £1,000,000, and it has a chargeable gain of £3,000,000 from a disposal of land. It elects to carry back £400,000 of S641 losses. Its S641 losses are therefore reduced to £600,000. Under TCGA92/S8(1)(a), the allowable loss to be deducted from the chargeable gain is £600,000, so that the company has an overall gain of £2,400,000 for the period.

Computation of the net amount of S641 gains for a period is slightly more complicated.

  • You aggregate all of the company’s capital gains from derivative contracts to get a total amount G.
  • You aggregate all of the allowable losses from derivative contracts to get a total amount L.
  • You then set any other capital losses that can be deducted in the period against non-derivative chargeable gains. ‘Deducted’ means deducted in accordance with TCGA92/S8(1) - the deductible losses will include capital losses brought forward, as well as any capital losses accruing in the period. If, after doing this, there are any losses over, call this amount N.
  • Finally, reduce amount G (the gains from derivative contracts) by the total of L and N. The remaining amount of derivative contract gains, if any, is the net amount of S641 gains.

Where a loss is carried back, the effect is to reduce the amount of S641 gains by the amount of the loss.

There are examples at CFM55070.