ATXP6 UK
Syllabus A2. Chargeable gains A2d. Principles of computing gains and losses

A2diii. Capital losses in tax year of death

Syllabus A2diii)

Evaluate the use of capital losses in the year of death

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 2018. Nemo had annual taxable income of around £20,000 since 2015/16. 

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 2018/19. 
2. Chargeable gains of approximately £14,000 each tax year 2015/16 to 2017/2018. 

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

  • Solution

    Date of Nemo death 1 November 2018; Tax year of death = 2018/19 

    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 2018/19 tax rates apply throughout) 

    17/18 Capital gain £14,000
    Less A/E (£11,700)
    Taxable gain £2,300
    Capital loss (£2,300)

    16/17 Capital gain £14,000
    Less A/E (£11,700)

    Taxable gain £2,300
    
Capital loss (£2,300)


    15/16 Capital gain £14,000
    Less A/E (£11,700)
    Taxable gain £2,300
    Capital loss (£2,300)

    £6,900 loss used therefore (£9,100 - £6,900) £2.200 Capital loss unrelieved.