Registering previous losses on shares

longwalks1

I know you have 4 years to register losses on shares with HMRC to offset it against any future profits (to help avoid CGT if you do really well), how much info do HMRC need? Is it a simple ;I made a total loss of £XXXX on the following shares etc' or do you need to provide proof of the trades?

Wasnt sure how much info they need, and how much they can find out themselves

Many thanks

cloud_dog

This should help.

Glen_Clark

As I understand it, any profits you make have to be used to offset any losses in that tax year before you can carry the remainder forward. This means that you have to make overall losses over the Captal Gains tax allowance before you can carry any forward.

bowlhead99

cloud_dog wrote: »

This should help.

It sounded to me like the OP was not trying to make a negligible value claim, or a special claim to offset capital gains losses against ordinary income (e.g. with EIS shares) - which are the subjects of that leaflet. They just wanted to know how much detail to put in their claim for ordinary losses which they'll be filing within the time limit.

You can simply do that by writing to HMRC as noted here (https://www.gov.uk/capital-gains-tax/losses) but should include the computations and details of what gains and losses you actually had, which support the claim (though don't need contract notes etc etc)

The claim can be done by letter if you don't fill out a tax return.

britishboy wrote: »

I know you have 4 years to register losses on shares with HMRC to offset it against any future profits (to help avoid CGT if you do really well), how much info do HMRC need? Is it a simple ;I made a total loss of £XXXX on the following shares etc' or do you need to provide proof of the trades?

Wasnt sure how much info they need, and how much they can find out themselves

Many thanks

They need more than "I made a total loss of £1000 and want to claim it". However, they don't need 'proof' of the trades when you submit a claim (though you should keep contract notes or statements in case they want to come and audit your records later).

If you were doing it via a tax return you would use sheet SA108, capital gains tax summary (which is here with notes https://www.gov.uk/government/publications/self-assessment-capital-gains-summary-sa108 ). The notes give an example of a worksheet that can be used to show your computations.

Effectively:
I made 5 disposals of listed shares for total proceeds of £500 with total allowable costs of £200, giving gains of £300 for year XY/XZ

I made £1300 of losses during year XY/XZ from disposing of 3 assets for proceeds of £1500 which had cost £2800.

After offsetting the losses against the gains for XY/XZ tax year year gains I have £1000 of unused losses which I claim to carry forward to be used against gains in subsequent tax years.
- - -
Here are the computations for the 5 gains and 3 losses as noted above:
5000 ordinary 0.1p shares in aaa plc sold on 1/3/20XZ for proceeds of £200 with allowable costs of £50 ; Gain of £150

100 preference shares bbb limited sold on 30/11/20XY for proceeds of £100 with allowable costs of £90 ; Gain of £10
etc etc

Glen_Clark wrote: »

As I understand it, any profits you make have to be used to offset any losses in that tax year before you can carry the remainder forward. This means that you have to make overall losses over the Captal Gains tax allowance before you can carry any forward.

The first sentence is true, but the second doesn't follow.

For example, in the above summary I didn't make losses of anywhere near the £11000 annual amount. My losses were enough to wipe out my gains leaving nothing left, so I didn't get to use my annual exemption at all for this year because I had no gains left to pay tax on. My £1300 losses were 'first deducted from chargeable gains arising in the same year' (the £300), but then I had £1000 of further spare losses and it is worth claiming them, to carry those forwards.

Then next year lets say I make £8000 gain. The net gain of £8000 is not above the annual tax free exemption, so I have no gains that can be reduced by my carried forward losses. I will simply carry the £1000 of losses forward again to use against the first available gains.

Then the year after lets say I make £12000 gain and I know I am supposed to apply my carried forward losses to reduce gains in the earliest later year, so I can't just choose to pay the tax on the full gains - I must use these losses that I have in my back pocket to reduce the gains, even if I think I might perhaps be a higher rate taxpayer in some later year.

However, by the time we get to the year in which I make the £12000 gains, the government has kindly increased the annual exemption to £11800. So: there are some net gains above the annual exemption and I must apply the carried-forward losses to offset these gains. However, losses brought forward can't reduce the gains to below the annual exempt amount, so I will only get to use £200 of brought forward losses, and then there is no more gain that isn't exempt. So I merrily carry £800 of remaining losses forward (after telling HMRC that I'm doing so) to use against further chargeable gains accruing in the earliest later year.

The operation of this mechanism basically means that if you have a net loss for a particular year you won't get to use your exemption that year because you don't need it. However if you have created spare unused losses in that particular year you can carry them forward, and you won't get 'penalised' for having them in terms of wasting a future annual exemption - i.e. when you make a gain next year you can still take that year's annual exemption as normal and only if it doesn't cover the gains of that year, will you have to dip in to your carried forward losses.

So, carried forward losses are useful because although you have to use them up on the next available gain of whatever type, you don't have to use them up when there was already an annual exemption available. It's NOT the case though, as you suggest, that to create carry-forwardable losses in the first place, your losses have to be very large and more than an allowance. The losses just have to be more than the gains you actually had, which might be very low or nil if you didn't actually sell anything at a profit.

Glen_Clark

bowlhead99 wrote: »

so I didn't get to use my annual exemption at all for this year

Thats what I should have explained, Thank You. For previous years I have been in the fortunate position of needing to use all my annual CGT exemption. So I would have needed to make 'overall losses over the Captal Gains tax allowance before I could carry any forward.

bowlhead99

Ah I see. If your gains are higher than the annual allowance then yes of course you need to have losses higher than the annual allowance too, to have any chance of being able to carry anything forward.

But really it's just that you need to have losses greater than gains, to create a carry forward. That's true whether you have a hundred pounds of gains or a million pounds of gains and isn't related particularly to whether the losses are greater than the annual allowance.

The special case of "needing to have losses greater than the annual allowance" is only a side effect of what happens if your gains are greater than the allowance too, and still doesn't really explain that if your losses are £1k greater than the allowance but your gains are £1.01k greater than the allowance you will still not be able to carry anything forward.

It just struck me as a really weird way of explaining it to someone who wasn't in your exact situation.