BIM75425 - Trading losses: types of relief: relief against chargeable gains: computation of relief

Relief for losses under FA91/S72 is calculated in four steps.

STEP 1: The trading loss: FA91/S72 (1)

This is simply the amount of the trading loss comprised in the claim - this may originate from two different years of assessment, a claim for the current year under ICTA88/380 (1) (a) and one for the following year under ICTA88/S380 (1)(b).

STEP 2: The relevant amount: FA91/S72 (1) & (2)

The ’relevant amount‘ is the excess of `the trading loss' (step 1) over aggregate income for the year of claim, less any losses already given elsewhere. In formal terms, the trader makes a claim to determine this amount in the notice of claim under ICTA88/S380, although in practice a combined notice is not required and a separate claim made within the time limit for a ICTA88/S380 claim should be admitted. An FA91/S72 claim may be made even though there is no income for the year of claim to justify the making of a claim under ICTA88/S380.

The rules in TMA70/S42 apply for determining the ’relevant amount‘ The significance of this is that it allows a point in time to be established by reference to which the claim is fixed; see step 4 below. In the usual case this will simply be when the claim can no longer be varied and after any appeal procedure has finally been concluded.

STEP 3: The maximum amount: FA91/S72 (4)

2001-02 and earlier years

The ’maximum amount’ is the amount on which the claimant would be chargeable to C GT for the year of claim. In calculating this amount relief due under FA91/S72 and the CGT annual exempt amount are to be disregarded. The ’maximum amount’ is therefore equal to chargeable gains net of all allowable losses, including those brought forward (or, exceptionally, carried back). It follows that trading losses will not be treated as allowable losses to the extent that capital losses are available to cover gains. Nor can they actually create a capital loss available for carry forward.

2002-03 & 2003-04

The calculation of the ’maximum amount’ for these years follows that for earlier years. In addition a claimant may elect that taper relief is to be disregarded in calculating the ’maximum amount’.

2004-05 onwards

The calculation of the ’maximum amount’ for 2004/05 and subsequent years follows that for 2001-2002 and earlier years. But unlike 2002-03 and 2004-05 taper relief must always be disregarded in calculating the ’maximum amount’, (FA02/S48 (1)).

STEP 4: Trading losses treated as allowable losses: FA91/S72 (3)

The ’relevant amount’ is treated for CGT purposes as an allowable loss accruing to the claimant in the year against which it is to be offset, subject to limitation by reference to the ’maximum amount’ (step 3).

It follows that the trading losses treated as allowable losses are given in priority to capital losses brought forward (or, exceptionally, carried back); this may be significant, bearing in mind the provisions of TCGA92/S3 (5) in relation to the deduction of the annual exempt amount. See CG18030 and BIM75435 example 3.