Time limit on CGT losses

Time limit on CGT losses

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A client that I started acting for in 2004 has just brought me schedules showing capital losses on listed securities between May 2000 and August 2001. My understanding is that the time limit for notifying the Revenue is 5 years from the deadline for submitting the self assessment return for that year. In my case 31 January 2007 and 31 January 2008.

If my understanding is correct, has anyone had any experience of the Revenue still allowing the losses? We are talking £150k and the client now has a couple of investment properties which he is likely to realise gains on in the future.

Kate

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By Davidbonar
02nd Apr 2008 19:08

Not promising
I agree that the strict position is as you state it. A loss is not an allowable loss unless it is notified to HMRC (s.16(2A) TCGA 1992), and the time limit for that notification is 5 years from the filing deadline for the return for the year in which the loss arises (s.43(1) TMA 1970).

There are a couple of possibilities:

1. You could argue that s.43(2) TMA 1970 applies. This provides that, if a claim for relief could not have been allowed without the making of an assessment, then the time limit for the claim is the end of the year of assessment following that in which the assessment is made. Clearly you can't actually deduct (ie obtain relief for) an allowable loss unless you have a capital gain against which to deduct it, so you could argue that the deadline for filing the loss claim is the year after the gain arises against which you use it. Personally I don't think this is the correct interpretation, and the HMRC manuals don't support it, but it might be worth asking.

2. If the losses arise because the listed shares became of negligible value (as many did in 2000 and 2001) rather than on an actual disposal, then you can validly make a negligible value claim under s.24 TCGA 1992 now. I'm guessing that's probably not the case, but I mention it for completeness.

If argument 1 doesn't succeed and 2 doesn't apply, then I'm afraid the chances of success are not high. There is guidance in the HMRC manuals based on a Ministerial statement (see CG13802) as to when to allow late claims, and they are all basically about cases where there is some good reason for not having made the claim earlier. From what you say, it appears the reason that the notification wasn't made was that neither you nor the client realised it was needed; he knew the facts but not the law, you knew the law but not the facts, and unfortunately he didn't tell you the facts in time.

It is well established law that ignorance is no defence, even where the law in question is obscure and/or absurd. I can't see any policy reason for the existence of this notification requirement, potentially many years in advance of any possible offset, other than raising tax revenues by being able to deny relief for perfectly straightforward genuine economic losses. I know the government is obsessed with obtaining information to enable them to prevent tax avoidance and the creation of artificial losses and so on, but there isn't any of that here. Sorry, I'm ranting now, and on this occasion it isn't fair to blame the current government, because s.16(2A) was inserted in 1995.

Basically I sympathise but I'm afraid I don't rate your chances very highly.

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