CAT / FIA FTX Syllabus D. Capital Gains Tax - The treatment of capital losses - Notes 4 / 5
Capital losses
Current year capital losses are set against current year capital gains in the same tax year.
The set off is made to the maximum possible extent and cannot be restricted to avoid wasting the annual exemption.
If there are insufficient gains to set off the capital losses in the year they arise, the unrelieved capital losses may be carried forward.
The capital losses brought forward are offset after the deduction of the annual exemption and therefore do not waste the annual exemption.
Any unrelieved capital losses brought forward are carried forward to the next year to be set off against capital gains.
Illustration:
Fiona and Jane made capital gains and capital losses for the years 2023/24 and 2024/25 as set out below:
| Fiona | Jane | |
| 2023/24 | ||
| Capital gains | 13,000 | 7,000 |
| Capital losses | 10,000 | 20,000 |
| 2024/25 | ||
| Capital gains | 14,500 | 16,200 |
| Capital losses | 5,200 | 2,000 |
Calculate the taxable gains for Fiona and Jane for both 2023/24 and 2024/25 and the amount of any losses carried forward at the end of 2024/25.
Solution:
| Fiona | 23/24 | 24/25 |
|---|---|---|
| Capital gains | £13,000 | £14,500 |
| Capital losses | (£10,000) | (£5,200) |
| Net capital gains/loss | £3,000 | £9,300 |
| Annual exemption | (£3,000) | (£3,000) |
| Taxable gain | Nil | £6,300 |
| Jane | 23/24 | 24/25 |
| Capital gains | £7,000 | 16,200 |
| Capital losses | (£20,000) | (2,000) |
| Net capital gains/loss | (£13,000) will be carried forward against c. gains of 24/25 | £14,200 |
| Annual exemption | Wasted | (£3,000) |
| Capital losses brought forward | (£11,200) | |
| Taxable gain | Nil | Nil |
Explanation:
Jane had a loss of 13,000 in 23/24 which was carried forward to 24/25.
After deducting the annual exemption in 24/25 £11,200 of the loss brought forward was used, therefore £1,800 is carried forward to 25/26.
Note that the current year losses must be set off to a maximum without any restriction and thus wastage of the annual exemption.
However, capital losses brought forward will only be offset if a gain remains after deduction of the annual exemption.