BIM75435 - Trading losses: types of relief: relief against chargeable gains: examples
A trader returns the following income, losses etc for 2001-02.
| Example 1 | Example 2 | Example 3 | |
| Assessable income | £40,000 | £30,000 | £30,000 |
| Trading losses current year | £50,000 | £50,000 | £92,000 |
| Chargeable gains | £100,000 | £100,000 | £100,000 |
| CG Allowable losses current year | £45,000 | £45,000 | £45,000 |
| CG Allowable losses brought forward | £40,000 | £40,000 | £3,000 |
| CG Annual exempt amount | £5,500 | £5,500 | £5,500 |
Claims are made under
- ICTA88/S380 (1)(a) in respect of the current year trading losses
- FA91/S72 (1).
No relief is otherwise allowed in respect of the trading losses.
Example 1
Relevant amount not limited by reference to maximum amount
| Step 1 | The trading loss (FA91/S72 (1)) | = £50,000 |
| Step 2 | The ‘relevant amount’ (FA91/S72 (2)) = £50,000 - £40,000 | = £10,000 |
| Step 3 | The ’maximum amount’ (FA91/S72 (4)) = £100,000 - (£45,000 + £40,000) | = £15,000 |
| Step 4 | The ’relevant amount’ is not limited by reference to the ‘maximum amount’ (FA91/S72 (3)) and trading losses of £10,000 are treated as allowable losses |
The capital gains computation is:-
| Chargeable gains | £100,000 | ||
| Allowable losses | |||
| current year | £45,000 | ||
| FA91/S72 | £10,000 | ||
| brought forward | £39,500* | £94,500 | |
| £5,500 | |||
| Annual exempt amount | £5,500 | ||
| nil |
*Allowable losses brought forward restricted by virtue of TCGA92/S3 (5B). Allowable losses carried forward £500.
Example 2
Relevant amount limited by reference to maximum amount
| Step 1 | The trading loss (FA91/S72 (1)) | = £50,000 |
| Step 2 | The ’relevant amount’ (FA91/S72 (2)) = £50,000 - £30,000 | = £20,000 |
| Step 3 | The ‘maximum amount‘(FA91/S72 (4)) = £100,000 - (£45,000 + £40,000) | = £15,000 |
| Step 4 | The ’relevant amount‘ is limited by reference to the ’maximum amount’ (FA91/S72 (3)) and trading losses of £15,000 are treated as allowable losses |
The capital gains computation is:-
| Chargeable gains | £100,000 | ||
| Allowable losses | |||
| current year | £45,000 | ||
| FA91/S72 | £15,000 | ||
| brought forward | £34,500* | £94,500 | |
| £5,500 | |||
| Annual exempt amount | £5,500 | ||
| nil |
*Allowable losses brought forward restricted by virtue of TCGA92/S3 (5B). Allowable losses carried forward £5,500.
Example 3
Part of annual exempt amount ineffective
| Step 1 | The ‘trading loss' (FA91/S72 (1)) | = £92,000 |
| Step 2 | The ’relevant amount‘ (FA91/S72 (2)) = £92,000 - £30,000 | = £62,000 |
| Step 3 | The ’maximum amount‘ (FA91/S72 (4)) = £100,000 - (£45,000 + £3,000) | = £52,000 |
| Step 4 | The ’relevant amount’ is limited by reference to the ’maximum amount‘ (FA91/S72 (3)) and trading losses of £52,000 are treated as allowable losses |
The capital gains computation is:-
| Chargeable gains | £100,000 | ||
| Allowable losses | |||
| current year | £45,000 | ||
| FA91/S72 | £52,000 | £97,000 | |
| £3,000 | |||
| Annual exempt amount | £3,000 | ||
| nil |
Allowable losses brought forward £3,000 are carried forward unused. Part of the annual exempt amount, £2,500 (that is, £5,500 - £3,000), is ineffective. This situation can occur only where the allowable losses brought forward fall short of the annual exempt amount.
