Losses and expiry

djburt

Hi there, I hope someone can clarify an issue I have regarding accruing losses in a business.

My financial advisor has stated that "losses from ten years ago can be carried forward indefinitely and used against future profits."

However, my understanding is that this is incorrect information. From what I have read online you only have a 4-year window in which losses can be used against the profit in your trade. After that, the losses have expired and can no longer be used.

Can someone please clarify this?

Thanks in advance - Dan

djburt

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Elaine_Wilson

You must actually claim the losses within four years for them to be valid.

Once claimed they can be carried forward indefinitely subject to -

1. the trade must continue throughout the period between the losses being incurred and being set off against profits, and

2. They must be used at the first opportunity. This means that if you make a loss of £6,000 in year one and a profit of £5,000 in year two the loss must be set against the profit even if no tax would have been payable on the profit because it was below the personal allowance.

(This is different from capital gains where you only use losses brought forward to reduce the current gain to the amount of the annual allowance and carry the rest forward.)

djburt

Thanks Elaine,

I was getting mixed up between 'claiming' the loss and 'using' the loss. I see. Also, this obviously links into your second point.

So, I take it that your hands are tied and you can not cherry pick:

a) WHEN you use your losses, and
b) HOW MUCH losses you use

This makes sense