Utilising unused losses for CGT
Sometimes tax-payers may sell an asset at a loss. If acceptable as capital losses, they can be deducted from Capital Gains made in the same or future years. As a general rule, if the asset would have been liable to CGT had a gain taken place then the loss should be an allowable deduction.
These allowable losses are deducted automatically. It is not necessary to make a claim for set-off of losses. However, it is possible to claim that losses are allowable and the preference to be given to such losses.
Unused losses that cannot be set against gains of the same year are carried forward to be set against future gains. It is only possible to utilise losses brought forward if net gains exceed the annual CGT exempt amount for the year.
If the net gains are greater than the annual exempt amount, the amount of losses brought forward to be utilised is the smaller of:
- the total losses brought forward,
- the total necessary to reduce the net gains to the level of the annual exempt amount. Any excess loss is carried forward.
If you own shares or other assets that become worthless you can make a ‘negligible value claim’. This procedure allows you to establish a capital loss even though you are still the legal owner of the ‘asset’. Such losses can be deducted from other capital gains as noted above.