ACCA ATX ^UK Syllabus A2. Chargeable gains - Capital losses in tax year of death - Notes ^{3 / 3}

Capital losses can be offset against current or future capital gains without time limit.

However, capital losses realised in the tax year of death, occurs where an individual makes a disposal of a chargeable asset(s) in the period from 6 April up to the date of death and a net capital loss is realised.

Net capital losses incurred in the year of death cannot be carried forward in the usual manner, in these circumstances only; the capital loss may instead be carried back and set off against the chargeable gains of the previous three years on a LIFO basis.

This may generate a refund of CGT previously paid. The amount carried back to a particular tax year is restricted to preserve the annual exempt amount.

Illustration

Nemo died on 1 November 2024. Nemo had annual taxable income of around £20,000 since 2021/22. 

Before his death he made the following sales of quoted shares with the following results: 

1. Chargeable gains of £8,000 and capital losses of £17,100 in 2024/25. 
2. Chargeable gains of approximately £5,000 each tax year 2020/21 to 2023/2024. 

How much of the capital losses can be relieved and when?

• Solution

  Date of Nemo death 1 November 2024; Tax year of death = 2024/25 

  Net capital loss realised in tax year of death is (£9,100) (£17,100-£8,000)

  The net capital loss realised in the tax year of death can be carried back for three years on a LIFO basis. 

  The amount carried back to a particular tax year is restricted so that the annual exempt amount is preserved in all tax years. (assume 2024/25 tax rates apply throughout) 

  23/24 Capital gain £5,000
  Less A/E (£3,000)
  Taxable gain £2,000
  Capital loss (£2,000)

  22/23 Capital gain £5,000
  Less A/E (£3,000)
  Taxable gain £2,000
  Capital loss (£2,000)

  21/22 Capital gain £5,000
  Less A/E (£3,000)
  Taxable gain £2,000
  Capital loss (£2,000)

  £6,000 loss used therefore (£9,100 - £6,000) £3,100 Capital loss unrelieved.