Utilising capital losses

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Utilising capital losses
  • Why capital losses are important
  • Identify special losses
  • EIS, SEIS or SITR investments
  • Unquoted shares
  • Loans or guarantees of loans to traders
  • Negligible value claim
  • Business asset disposal relief (known as entrepreneurs’ relief prior to 6 April 2020)
  • Losses arising outside the UK by a non-domiciliary
  • Capital gains tax liability of non-residents
  • More...

Utilising capital losses

Why capital losses are important

Capital losses are usually set against the capital gains that arise in the same year as the loss, reducing the total taxable gains for that year. Losses not used in this fashion are normally carried forward to be set against the next available gains.

However, in certain circumstances, those losses may be blocked, restricted, carried back to earlier tax years or possibly treated as if they were income tax losses (see below).

Where the taxpayer is subject to more than one rate of capital gains tax in a single tax year, they can choose which gains should be reduced by their capital losses so that their tax liability is reduced to the minimum possible.

If a taxpayer makes a claim to defer chargeable gains for an earlier year, the use of losses may be disturbed, which can have a knock-on effect for several tax years.

Capital losses must be quantified and claimed before they can be used. See the Use of capital losses guidance note for how capital losses arise and how to claim them.

Identify special losses

Where the taxpayer has made a capital loss, you first need to determine if the loss arises under one of the special circumstances that limit or expand the use of that loss, see below.

EIS, SEIS or SITR investments

Enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) are designed to encourage investment by individuals in unquoted trading companies. The social investment tax relief scheme (SITR, also known as SI tax relief) encourages investment by individuals in social enterprises, which may be unquoted companies, charities or other structures.

A gain accruing on a disposal of EIS, SEIS or SITR investments within three years of issue (or, for EIS shares, the companystarting to trade) is a chargeable gain and any loss accruing in that period is an allowable loss.

A gain accruing on the disposal of the EIS, SEIS or SITR investments after this three-year period is not a

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