HOW TO MAXIMISE TAX RELIEF FOR CGT LOSSES

When you have several assets to sell e.g. property, bitcoin, shares and investments, there is a right way and wrong way. A profit on the sale of a capital asset is called Capital Gain, or 'Gain' for short.

RULES

• Everyone benefits from a tax free 'annual exemption' (AE) similar to the income tax allowance.
• If you sell multiple items in the same tax year, any losses have to be used in full, even if it reduces the gain on other disposals below your 'annual exemption' or worse is greater than your gain.
• If your loss exceeds your gain in the same tax year, the surplus can be carried forward to future gains in future years.
• If you dispose of only one item at a loss, this can be also carried forward.
• If we don't record the loss, you cannot claim it against a future gain.
• If you have a loss from a previous year and make a gain that is within your AE, thus exempt, we do not need to use your loss brought forward, we can continue to carry forward until another year.
• If you have a loss from a previous year and make a gain that is above your AE, we are permitted to only use enough of the loss to reduce your gain down to the AE, any surplus can be carried forward again until another year.

 EXAMPLE-1

• Assume the annual exemption is £12000. You have a loss brought forward of £5000 from a previous tax year and make a gain of £15000 in the current year. 
• We can use £3000 of the loss to bring your gain of £15000 down to £12000, the annual exemption makes the £12000 exempt.
• We can carry forward the unused loss of £2000 to be used against future capital gains.

EXAMPLE-2

• Assume the annual exemption is £12000. You make two disposals in the same tax year, one at a loss of £10000, one at a gain of of £15000. 
• Because they are both sold within the same tax year, we have to use the loss in full, Gain £15000 less £10000 loss  = a net gain of £5000; the net gain is exempt as it is below the annual exemption of £12000.
• Resulting, we have wasted some of the loss by not fully utilising the annual exemption.

EXAMPLE-3

• Assume the annual exemption is £12000. You make two disposals in the same tax year, one at a loss of £20000, one at a gain of of £15000. 
• Because they are both sold within the same tax year, we have to use the loss in full, Gain £15000 less £20000 loss  = a net loss of £5000; the unused (or unrelieved) loss is carried forward.
• Resulting, we have wasted some of the loss and wasted all of the annual exemption.

SUMMARY - if need to make multiple disposals and you are expecting one or more to be at a loss, consult me immediately as timing is everything.

TAX PLANNING - it is called tax planning because we need to plan 1-2 years ahead in some cases by selling assets to crystallise a loss in an earlier tax year so we can use your losses in the most tax efficient manor.