Setting Trading Losses Against Capital Gains

I made a loss in my soletrader business this year, and sold a number of shares I own to supplement my living expenses. I estimate that selling these shares will realise a capital gain after reliefís of £30,000. Can I claim relief for any of my trading loss against the gains I have made?

1st March 2010

Yes, a loss relief is available that allows individuals to offset self-employed losses against any capital gains you have made in the same tax year.  

You must first offset the trading losses against your total other income for the tax year, even if this means losing the benefit of your tax free personal allowance. Any excess can then be extended under section 71 of Income Taxes Act 2007 (ITA 2007) and set against your chargeable capital gains (after capital gain losses have been accounted for) for the tax year.

Alternatively, you can choose to carry the loss back to the previous year, first against other income (s64 ITA2007), and then against capital gains (s72 ITA2007).

If you do not have any other income in the tax year, tax relief on your trading loss is claimed against your capital gains of £30,000. This will result in a significant fall in your capital gains tax liability.

However, be aware that the capital gains tax rates are currently only applied at 18% of any gain, and it may therefore be beneficial for you to consider carrying the losses forward to obtain income tax relief in a later year at a higher rate.

Your local TaxAssist Accountant can advise on the most tax efficient option available to you with a quick calculation.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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