On the disposal of an asset, a capital gain or a capital loss may arise. Capital losses arising in the same tax year as capital gains must first be offset against those capital gains. Consequently, this means you may lose your ‘tax free’ annual exempt amount for that tax year.
Capital losses remaining after that offset can be carried forward indefinitely to offset against your future capital gains, until they are used up.
Capital losses carried forward can be used tax efficiently in part, unlike in-year capital losses, to ensure your annual exemption is utilised and not wasted. Importantly, carried forward losses can only be offset against future gains if they are considered allowable capital losses. A capital loss is not allowable unless it is notified and quantified to HMRC. The time limit for this notification being within four years of the relevant tax year.
If you prepare personal tax returns annually, these losses can be included on your tax return, for the year in which they arise, to notify HMRC of them. Otherwise, HMRC generally require loss claims in writing, for them to be considered allowable.
To avoid capital losses being lost, ensure HMRC are notified of them within the time limit and keep hold of the records that support them. For tax saving tips contact us – call Tristan Wilcox-Jones, Samantha Taylor or Lucas Knight on 01225 445507 | oclaccountancy.com