We have a client who recorded a net CGT loss for 2003-04 tax year, which was reported at that time to HMRC.
In 2005-06 he incurred a capital gain in excess of the annual exemption, but failed to reduce it by the b/fwd capital loss.
If I now enter the loss as a b/fwd figure in the 2005-06 tax return input screen, our software (Sage) carries forward the full amount, without allocating any part of it to the 2005-06 gain.
If I create a dummy client and do the same thing in 2010-11 then the software does net off the b/fwd loss against current year gains (in excess of annual exemption).
It is possible, I suppose, at a pinch, that the software recognises which years are still in date for an overpayment relief claim. What is not obvious to me is whether the taxpayer is entitled to carry forward the full amount of loss which was not deducted at the correct time and which is now out of time for such a deduction. My suspicion is that you cannot carry it forward (contrary to the suggestion in our software). The relief is an automatic one, not subject to a claim.
Does anyone out there think we could still claim the loss, ie leapfrog a (now) out of date year in which the loss should rightfully have been relieved?
With kind regards
Clint Westwood
Replies (10)
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Is the question not
How should one read TCGA 1992, section 2(2)(b) currently in relation to a loss that was not deducted as specified in that section some 8 years previous.
I do not know the right answer. It is for a court to decide. I would be inclined to interpret it to mean that I do now have a loss that has not previously been deducted under that section.
There is no time limit on the utilisation of losses brought forward.
If they haven't been claimed against previous gains they're still available.
(And why are you dealing with 2005-06? Long past its sell by date)
Optionality
CGT Losses carried forward are the only losses in the tax code with a degree of optionality - given that you only need claim them to reduce net gains of the later year to an amount equal to the annual allowance - the legislation, s3(5B) says the losses deducted 'shall not be greater than the excess' which indicates that they could be less than the excess, and s2(2)(b) allows losses to be deducted in an earlier year 'so far as they have not been allowed as a deduction' - the losses were not claimed so, arguably, haven't been allowed and can still be carried forward...
The Act is quite clear
(b)so far as they have not been allowed as a deduction from chargeable gains accruing in any previous year of assessment, any allowable losses accruing to that person in any previous year of assessment (not earlier than the year 1965-66).
The losses haven't been allowed in earlier years, so they're still available, which I think is what Grammar Police stated.
Yes but
The Act is also quite clear in section 2(2)(b) that the amount of gains that were taxable in 2005/6 is the amount of the gains, less the brought forward loss.
There is no "you can deduct them if you want" as Paul suggests. They are deducted in computing the amount of gains taxable in 2005/6. That is what the legislation says with respect to 2005/6.
So, one might take the view that they have been deducted in 2005/06 and the amount chargeable in 2005/06 was simply overstated by that amount, and was an error in 2005/6.
That is the OP's dilemna. I do not disagree that there is an argument for them to be deducted now, but it is wrong to present it as a black and white, simple case.
Black and white...?
Arguably - and not an argument I'd care to win but, having said that, provided full disclosure is made in the white box section of the return, a necessary precaution, why not? The loss hadn't been allowed...
Sage
Clint,
This doesn't answer the technical point...
...but in order to get Sage to allocate the brought forward loss against the 2005/2006 Gain, have you pressed the "Recalculate/Allocate Losses" button in the bottom left hand corner of the "Losses and liabilities" input screen.
Michael.