BIM75435 - Trade losses: types of relief: relief against chargeable gains: examples
A trader returns the following income, losses etc for 2006-07.
|
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 |
£8,800 |
£8,800 |
£8,800 |
Claims are made under:
- ITA07/S64(2)(a) in respect of the current year trading losses.
- TCGA92/S261B.
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 (TCGA92/S261B(1)) |
= £50,000 |
Step 2 |
The ‘relevant amount’ (TCGA92/S261B(3)) £50,000 - £40,000 |
= £10,000 |
Step 3 |
The ’maximum amount’ (TCGA92/S261C) £100,000 - (£45,000 + £40,000) |
= £15,000 |
Step 4 |
The ’relevant amount’ is not limited by reference to the ‘maximum amount’ (TCGA92/S261B(5)) 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 |
|
TCGA92/S261B |
£10,000 |
|
brought forward |
£36,200* |
£ 91,200 |
|
|
£ 8,800 |
Annual exempt amount |
|
£ 8,800 |
|
|
nil |
*Allowable losses brought forward restricted by virtue of TCGA92/S3 (5B). Allowable losses carried forward £3,800.
Example 2
Relevant amount limited by reference to maximum amount
Step 1 |
The trading loss (TCGA92/S261B(1)) |
= £50,000 |
Step 2 |
The ‘relevant amount’ (TCGA92/S261(3)) £50,000 - £30,000 |
= £20,000 |
Step 3 |
The ‘maximum amount’ (TCGA92/S261C) £100,000 - (£45,000 + £40,000) |
= £15,000 |
Step 4 |
The ‘relevant amount’ is limited by reference to the ‘maximum amount’ (TCGA92/S261B(5)) 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 |
|
TCGA92/S261B |
£15,000 |
|
brought forward |
£31,200* |
£ 91,200 |
|
|
£ 8,800 |
Annual exempt amount |
|
£ 8,800 |
|
|
nil |
*Allowable losses brought forward restricted by virtue of TCGA92/S3 (5B). Allowable losses carried forward £8,800.
Example 3
Part of annual exempt amount ineffective
Step 1 |
The ‘trading loss’ (TCGA92/S261B(1)) |
= £92,000 |
Step 2 |
The ‘relevant amount’ (TCGA92/S261B(3)) £92,000 - £30,000 |
= £62,000 |
Step 3 |
The ‘maximum amount’ (TCGA92/S261C)) £100,000 - (£45,000 + £3,000) |
= £52,000 |
Step 4 |
The ‘relevant amount’ is limited by reference to the ‘maximum amount’ (TCGA92/S261B(5)) 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 |
|
TCGA92/S261B |
£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, £5,800 (that is, £8,800 - £3,000), is ineffective. This situation can occur only where the allowable losses brought forward fall short of the annual exempt amount.
