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Trading losses brought forward, capital gain and terminal loss relief

Trading losses brought forward, capital gain...

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I would appreciate it if anyone will give me some reasurance on this topic.

I have a sole trader client who has trade losses brought forward and has just ceased to trade (Dec 2010). The losses brought forward have arisen from unused overlap profits which I released by changing the accounting reference date in the tax year 08/09.

The client has also made a substantial capital gain in the current tax year from the sale of a second home.

So my question- does terminal loss relief allow losses brought forward, or crystalised from overlap profits get the same benefit of being available to offset against a capital gain in the same way as a current year loss would be?

Many thanks

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Euan's picture
By Euan MacLennan
04th Feb 2011 11:13


Terminal loss relief allows you to carry back any losses incurred in the final 12 months of trading (Jan - Dec 2010) against the trading income of the 3 previous tax years (2009/10, then 2008/09 in theory but already a loss, then 2007/08).  There is no set off against other income (including capital gains) in 2010/11 or any other tax year.

However, if you have a trading loss in the 9 months to Dec 2010, you can set that off against the capital gain in 2010/11.

Losses carried forward from 2008/09 can only be set against any profits of the same trade in 2009/10 and 2010/11.  If not used, they are lost when the trade ceases.

I hope this is reassuring to you, even if not very helpful to your client.

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