Month: September 2023

Usually, if you sell an asset for less than you paid for it you would make a capital loss. As a general rule, if the asset would have been liable to CGT had a gain taken place, then the loss should be an allowable deduction. 

The exact treatment of losses depends on whether they are:

• losses of the same year of assessment as the gains;
• losses of earlier years of assessment;
• losses of the tax year of death; or
• particular losses which may, exceptionally, be carried back from a later year of assessment.

These deduction of an allowable loss from chargeable gains does not require a claim and does not extend the time limit for enquiring into the original loss claim. Gains accruing in a tax year may be chargeable to CGT at different rates. Therefore, the tax effect of losses and the annual exempt amount set off against those gains can vary.

In most circumstances, allowable losses and the annual exempt amount can be deducted in the way that is most beneficial to the individual. This will usually be against gains that are charged at the highest rate. A claim for losses does not have to be made straight away and can be made up to 4 years after the end of the tax year that the relevant asset was disposed.

Where there remain unused losses that cannot be set against gains of the same year, these losses are carried forward to be set against future gains. It is only possible to utilise losses brought forward if net gains exceed the annual CGT exempt amount for the year.

There are special rules concerning the transfer of assets in groups of companies. In most cases, this means that where assets are moved around group companies, there are no immediate capital gains consequences. This effectively allows for a tax neutral, no gain – no loss transfer opportunity.

HMRC’s manuals states that:

This is achieved by fixing both the consideration received for the asset by the transferor and the consideration given for the asset by the transferee. The transferor has neither chargeable gain nor allowable loss. The transferee effectively takes over the transferor’s capital gains cost, augmented by indexation allowance as appropriate.

The no gain – no loss rule only applies where a member of a group of companies disposes of an asset to another member of the same group. There is a general requirement that there should be both a disposal by a group company and an acquisition by a group company.

The no gain/no loss rule does not apply where a group company makes a deemed disposal of an asset for consideration received from another group company, if the group company paying the consideration does not itself acquire an asset.

There are also other specific exceptions that must be considered before relying on the use of a no gain – no loss transfer.