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Tax Losses

Capital Gains Tax Losses

What happens if you make a tax loss on a chargeable asset and how do you report CGT 'allowable losses' to HM Revenue and Customs?

CGT LOSSES: After explaining how to use losses to reduce your gain, you can also find important information about Capital Gains Tax record keeping and market value.

How to Reduce CGT

To further lower your total taxable gains amount that is payable to HM Revenue and Customs (HMRC), you can report losses on chargeable asset(s).

As a general rule, the loss you report is the amount that is deducted from the gains you made in the tax returns for a given year.

If you are above your personal tax-free allowances after totaling your taxable gain you can deduct 'unused' losses from previous tax years.

If the current year's loss, plus any remaining losses from previous years, reduces your gains below your annual exempt amount, you can carry forward any excess losses to future tax years.

Reporting CGT Losses to HMRC

As a rule, Capital Gains Tax losses are claimed on your tax return. You should write to HM Revenue and Customs if you are not registered for Self Assessment or you did not make a profit (realise a gain).

When you dispose of an asset, at a loss, you have up to 4 years after the end of that tax year to declare the loss on your Self Assessment.

Note: The exception to this rule are CGT losses made before the 5th of April 1996. These can be claimed for, but only after all current, eligible, losses have been calculated.

Loss on Disposal of Assets (family and others)

Husband, Wife or Civil Partner

Assets that you give or sell to your spouse (or civil partner) are not usually liable for Capital Gains Tax. Nevertheless, within the same rule, you cannot claim for Capital Gains Tax losses against these assets.

Family Members

Similarly, you cannot deduct CGT losses from gifts, selling or 'disposing of' assets to a family member. The exception to this rule is if you are offsetting the loss against a gain to the same person. The same rules also apply to 'connected people'.

Connected People

This does not refer to your Godfather, or his 'associates', who make you an offer you cannot refuse. Connected people are defined by HM Revenue and Customs as a list of people which may include;

Claiming Asset Depreciation

Depreciation refers to situations where you are claiming for an asset that has lost its value. You can claim a Capital Gains tax loss if an asset, that you still own, becomes worthless or of 'negligible value'. You should refer to HM Revenue and Customs for the special rules on making negligible value claim.

Special Rules for CGT Losses

HMRC has further guidance on the special rules for these CGT losses;

CGT Record Keeping

You must collect all Capital Gains Tax records to help you calculate your gains or losses and for filling in your Self Assessment form. You are required to keep these CGT records for a minimum of one year after the Self Assessment deadline. Online and Paper submissions have different deadlines.

In cases where HM Revenue and Customs (HMRC) are checking your tax return they will inform you if this process has already been started, and you must keep your CGT records for longer than the usual time period. The same rule for CGT record keeping applies if you sent in your Self Assessment return late.

Note: Businesses, a Sole Trader, or Partnerships, must keep Capital Gains Tax records for a minimum of 5 years after the Self Assessment deadline.

CGT Records You Need to Keep

The kind of Capital Gains Tax records that you need to keep include invoices, bills, and receipts that have the monetary amount and date showing;

You should also keep contracts and documents used when selling or buying an asset. These can include asset valuations and contracts from stockbrokers or solicitors.

What Happens if You Do Not Have CGT Records?

If CGT records cannot be replaced, such as when they were destroyed, stolen or lost, you must try to recreate them. When using recreated records to complete your Self Assessment return, you must be able to show where the figures are different between;

CGT Market Value Rule

As a rule, the amount that you sold an asset for - minus what you paid for it - is your profit or realized gain. However, there are some circumstances where you use the market value as a substitute.

How to Check the Market Value

HMRC will be able to help you calculate the market value when you complete your tax return. You should fill in a 'Post-transaction valuation check form' after you have sold or disposed of an asset. Send the form to the address provided on the document and then allow a minimum of 2 months for HM Revenue and Customs to respond.

The History of Capital Gains Tax UK

One of the primary drivers to the introduction of Capital Gains Tax in the United Kingdom was the rapid growth in property values post World War II.

This led to some property developers deliberately leaving office blocks empty so that a rental income could not be established and greater capital gains could be realized. The UK Capital Gains Tax system was therefore introduced by the Chancellor at the time - James Callaghan in 1965.

Capital Gains Tax Losses, CGT Record Keeping and Market Value Rule; UK Rules Updated 2017