Locking a loss in

chucknorris

I'm sure many of you, like me, lock in a profit up to the CGT limit every year, by switching from one fund to another (bed and breakfasting). But I've just realised that I now have a notional paper loss that I should lock in and carry forward as a loss to set off against future CGT (when I sell one of my investment properties) by switching it into another fund, has anyone else also done this?

grey_gym_sock

i have done this in some tax years, but only because i didn't have suitable gains to realize.

the downside of this is that it means you're not using your CGT allowance for the current tax year. because you must first set all gains and losses realized in the current tax year against 1 another, and can only carry forward any net loss that you have after doing that.

however, assuming selling 1 investment property will take you well over the annual CGT allowance, then this may make sense, since that will be a definite tax savings. whereas, not using this year's CGT allowance may not matter so much, if you are happy to postpone taking gains on funds by not selling them.

chucknorris

grey_gym_sock wrote: »

i have done this in some tax years, but only because i didn't have suitable gains to realize.

the downside of this is that it means you're not using your CGT allowance for the current tax year. because you must first set all gains and losses realized in the current tax year against 1 another, and can only carry forward any net loss that you have after doing that.

however, assuming selling 1 investment property will take you well over the annual CGT allowance, then this may make sense, since that will be a definite tax savings. whereas, not using this year's CGT allowance may not matter so much, if you are happy to postpone taking gains on funds by not selling them.

Thanks, I just wanted to test my sanity. My total CGT bill is going to be around £330k, on 4 properties (excluding half a property that I want to keep with my wife). So one property will absorb this loss. This current tax year I already have about £11k gains (just under the allowance), but I can lock in a loss of £35K by switching some funds. Which means that I can carry forward a net loss of £24k to offset against future CGT. When the base rate goes to about 2.25% I will start selling property, as at that point, dividend income will give me a similar return, so it might only be a few years away, when I sell my first property.

As you say, I can bed and breakfast in later years, but I think that I'd be very foolish not to lock this loss in. But I only just thought of doing this, so I wanted to bounce the idea in the forum.