- The legislation specifies that capital losses that arise in a tax year must be offset against any capital gains for that tax year (TCGA 1992, s 2).
- As a consequence, this may mean that an individual’s annual exempt amount for that tax year may be lost.
- Capital losses of previous tax years which are unutilised may be carried forward indefinitely for offset against subsequent tax year capital gains (subject to possible limit).
- Current tax year capital losses are offset before any capital losses brought forward from earlier tax years may be used.
- Capital losses cannot be carried back to earlier tax years, except with respect to capital losses arising in the year of death of the individual.
Example: Gains and losses
Henry has capital gains and losses as follows:
Year Gains Losses Annual exemption
2016/17 £30,000 Nil £11,100
2017/18 Nil £8,000 £11,300
2018/19 £35,000 £5,000 £11,700
2016/17
Gains chargeable to capital gains tax:
£30,000 less annual exemption £11,100 = £18,900
2017/18
Gains chargeable to capital gains tax = Nil
Losses carried forward to future years = £8,000
The annual exemption is lost.
2018/19
Gains chargeable to capital gains tax £35,000
Less: losses of same year (£5,000)
£30,000
Less: losses brought forward (£8,000)
£22,000
Less: annual exemption 2018/19 (£11,700)
Net chargeable gains £10,300
Now contrast this with William’s situation:
Year Gains Losses Annual exemption
2016/17 £24,000 £20,000 £11,100
2017/18 Nil £8,000 £11,300
2018/19 £20,000 £5,000 £11,700
2016/17
Gains chargeable to capital gains tax:
£24,000 less capital losses £20,000 = £4,000
Less annual exemption used to reduce gain to nil (£4,000)
Net chargeable gain = nil
The balance of the unused annual exemption for the year of £7,100 (£11,100 - £4,000) is lost.
2017/18
Gains chargeable to capital gains tax = Nil
Losses carried forward to future years = £8,000
The annual exemption is lost.
2018/19
Gains chargeable to capital gains tax £20,000
Less: losses of same year (£5,000)
£15,000
Less: losses brought forward (£3,300)*
£11,700
Less: annual exemption 2018/19 (£11,700)
Net chargeable gains nil