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capital gains

Timing Capital Gains and Losses

Monday 20 February, 2023

Be aware of upcoming changes to Annual Exempt Amount

The majority of taxpayers make taxable capital gains on very rare occasions, perhaps once or twice in a lifetime. They may never report the capital losses realised, or the small gains which are covered by their CGT annual exemption.

However, the CGT annual exemption will be cut from £12,300 to £6,000 on 6 April 2023, which could cost clients up to £1,764 on the disposal of an investment property.

If you are planning to sell a property, or your business this year, you should be aware of this reduction in tax relief. You should also consider that the CGT exemption will halve again on 6 April 2024 to £3,000, so some long-term planning is needed.

Do you have capital losses made in past or current tax years? Where there have been no capital gains in the intervening period to use up the loss it is automatically carried forward to be used against gains in a future year, but it must be claimed first.

To be eligible to be carried forward a capital loss must be claimed within four years of the end of the tax year in which it arose, so by 5 April 2023 for losses that arose in 2018/19.

Some clients may have potential capital losses from holding cryptocurrencies, following the crypto market crash in November 2022. Others may be holding shares or other securities which now have little or no value.

In either of these situations, you may wish to make a negligible value claim. But think carefully about the timing of such claim, which will create a capital loss.

If the claim is made in 2022/23 the capital loss will be set against capital gains for the same tax year before the deduction of the annual exemption. If there are no capital gains arising in 2022/23, or there are surplus losses after any gains have been covered by losses, those surplus losses are carried forward to 2023/24.

Losses which are brought forward are offset against gains after deduction of the annual exemption, so the annual exemption for that year is not wasted. In view of the shrinking annual exemption, it may be useful to have a brought forward loss in the bag to offset against future gains.

Remember that to claim a negligible value the asset must still exist at the time the claim is made. If the company has already been dissolved a capital loss on those company shares will have crystallised already.

If the shares are not included on the HMRC list of quoted investments which are of negligible value, you may need to ask HMRC to agree a value using form CG34.  You can use the link below to look up negligible value investments with HMRC.

List of securities which HMRC agree are of negligible value

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