BIM85040 - Trade losses - types of relief: relief against chargeable gains - examples
S261B Taxation of Chargeable Gains Act 1992 (TCGA 1992)
A trader returns the following income, losses etc for 2012-2013
| - | Example 1 | Example 2 | Example 3 |
|---|---|---|---|
| Taxable income | 拢 40,000 | 拢 30,000 | 拢 30,000 |
| Trading losses current year | 拢 50,000 | 拢 50,000 | 拢 92,000 |
| Chargeable gains | 拢100,000 | 拢100,000 | 拢100,000 |
| CG Allowable losses current year | 拢 45,000 | 拢 45,000 | 拢 45,000 |
| CG Allowable losses brought forward | 拢 40,000 | 拢 40,000 | 拢 3,000 |
| CG Annual exempt amount | 拢 10,600 | 拢 10,600 | 拢 10,600 |
Claims are made under:
- S64(2)(a) Income Tax Act 2007 in respect of the current year trading losses.
- S261B TCGA 1992.
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 | = 拢50,000 |
| Step 2 | The 鈥榬elevant amount鈥� 拢50,000 - 拢40,000 | = 拢10,000 |
| Step 3 | The 鈥檓aximum amount鈥� 拢100,000 - (拢45,000 + 拢40,000) | = 拢15,000 |
| Step 4 | The 鈥檙elevant amount鈥� is not limited by reference to the 鈥榤aximum amount鈥� and trading losses of 拢10,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | 拢100,000 |
| Allowable losses | - | - |
| current year | 拢45,000 | - |
| S261B TCGA 1992 | 拢10,000 | - |
| brought forward | 拢 34,400* | 拢 89,400 |
| - | - | 拢 10,600 |
| Annual exempt amount | - | 拢 10,600 |
| - | - | nil |
*Allowable losses brought forward restricted by virtue of S3(5B) TCGA 1992. Allowable losses carried forward 拢5,600.
Example 2 - Relevant amount limited by reference to maximum amount
| Step | - | Amount |
|---|---|---|
| Step 1 | The trading loss | = 拢50,000 |
| Step 2 | The 鈥榬elevant amount鈥� 拢50,000 - 拢30,000 | = 拢20,000 |
| Step 3 | The 鈥榤aximum amount鈥� 拢100,000 - (拢45,000 + 拢40,000) | = 拢15,000 |
| Step 4 | The 鈥榬elevant amount鈥� is limited by reference to the 鈥榤aximum amount鈥� and trading losses of 拢15,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | 拢100,000 |
| Allowable losses | - | - |
| current year | 拢45,000 | - |
| S261B TCGA 1992 | 拢15,000 | - |
| brought forward | 拢 29,400* | 拢 89,400 |
| - | - | 拢 10,600 |
| Annual exempt amount | - | 拢 10,600 |
| - | - | nil |
*Allowable losses brought forward restricted by virtue of S3(5B) TCGA 1992. Allowable losses carried forward 拢10,600.
Example 3 - Part of annual exempt amount ineffective
| Step | - | Amount |
|---|---|---|
| Step 1 | The 鈥榯rading loss鈥� | = 拢92,000 |
| Step 2 | The 鈥榬elevant amount鈥� 拢92,000 - 拢30,000 | = 拢62,000 |
| Step 3 | The 鈥榤aximum amount鈥� 拢100,000 - (拢45,000 + 拢3,000) | = 拢52,000 |
| Step 4 | The 鈥榬elevant amount鈥� is limited by reference to the 鈥榤aximum amount鈥� and trading losses of 拢52,000 are treated as allowable losses | - |
The capital gains computation is:
| - | Amount | Amount |
|---|---|---|
| Chargeable gains | - | 拢100,000 |
| Allowable losses | - | - |
| current year | 拢45,000 | - |
| S261B TCGA 1992 | 拢52,000 | 拢 97,000 |
| - | - | 拢 3,000 |
| Annual exempt amount | - | 拢 3,000 |
| - | - | nil |
Allowable losses brought forward 拢3,000 are carried forward unused. Part of the annual exempt amount, 拢7,600 (that is, 拢10,600 - 拢3,000), is ineffective. This situation can occur only where the allowable losses brought forward fall short of the annual exempt amount.