BIM85040 | Trade losses - types of relief: relief against chargeable gains - examples
From HM Revenue & Customs · Business Income Manual
S261B Taxation of Chargeable Gains Act 1992 ()
A trader returns the following income, losses etc for 2012-2013
| - | Example 1 | Example 2 | Example 3 |
|---|---|---|---|
| Taxable income | £ 40,000 | £ 30,000 | £ 30,000 |
| Trading losses current year | £ 50,000 | £ 50,000 | £ 92,000 |
| Chargeable gains | £100,000 | £100,000 | £100,000 |
| CG Allowable losses current year | £ 45,000 | £ 45,000 | £ 45,000 |
| CG Allowable losses brought forward | £ 40,000 | £ 40,000 | £ 3,000 |
| CG Annual exempt amount | £ 10,600 | £ 10,600 | £ 10,600 |
Claims are made under:
in respect of the current year trading losses.
.
No relief is otherwise allowed in respect of the trading losses.
Example 1 - Relevant amount not limited by reference to maximum amount
| Step | - | Amount |
|---|---|---|
| Step 1 | The trading loss | = £50,000 |
| Step 2 | The ‘relevant amount’ £50,000 - £40,000 | = £10,000 |
| Step 3 | The ’maximum amount’ £100,000 - (£45,000 + £40,000) | = £15,000 |
| Step 4 | The ’relevant amount’ is not limited by reference to the ‘maximum amount’ and trading losses of £10,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | £100,000 |
| Allowable losses | - | - |
| current year | £45,000 | - |
| £10,000 | - | |
| brought forward | £ 34,400* | £ 89,400 |
| - | - | £ 10,600 |
| Annual exempt amount | - | £ 10,600 |
| - | - | nil |
*Allowable losses brought forward restricted by virtue of S3(5B) TCGA 1992. Allowable losses carried forward £5,600.
Example 2 - Relevant amount limited by reference to maximum amount
| Step | - | Amount |
|---|---|---|
| Step 1 | The trading loss | = £50,000 |
| Step 2 | The ‘relevant amount’ £50,000 - £30,000 | = £20,000 |
| Step 3 | The ‘maximum amount’ £100,000 - (£45,000 + £40,000) | = £15,000 |
| Step 4 | The ‘relevant amount’ is limited by reference to the ‘maximum amount’ and trading losses of £15,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | £100,000 |
| Allowable losses | - | - |
| current year | £45,000 | - |
| £15,000 | - | |
| brought forward | £ 29,400* | £ 89,400 |
| - | - | £ 10,600 |
| Annual exempt amount | - | £ 10,600 |
| - | - | nil |
*Allowable losses brought forward restricted by virtue of S3(5B) TCGA 1992. Allowable losses carried forward £10,600.
Example 3 - Part of annual exempt amount ineffective
| Step | - | Amount |
|---|---|---|
| Step 1 | The ‘trading loss’ | = £92,000 |
| Step 2 | The ‘relevant amount’ £92,000 - £30,000 | = £62,000 |
| Step 3 | The ‘maximum amount’ £100,000 - (£45,000 + £3,000) | = £52,000 |
| Step 4 | The ‘relevant amount’ is limited by reference to the ‘maximum amount’ and trading losses of £52,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | £100,000 |
| Allowable losses | - | - |
| current year | £45,000 | - |
| £52,000 | £ 97,000 | |
| - | - | £ 3,000 |
| Annual exempt amount | - | £ 3,000 |
| - | - | nil |
Allowable losses brought forward £3,000 are carried forward unused. Part of the annual exempt amount, £7,600 (that is, £10,600 - £3,000), is ineffective. This situation can occur only where the allowable losses brought forward fall short of the annual exempt amount.