Tax & Accounting News

Making the most of losses on shares

09/03/2010

Where a loss is made on investments in shares, it can be offset against any gains made in the same year, which provides a tax saving.

When working out the tax due in any one year, HM Revenue and Customs (HMRC) will first of all deduct the losses made from the gains. If there are still any gains left, they will be deducted from the taxpayers’ annual exemption (currently £10,100) and it is only then that Capital Gains Tax (CGT) may be charged.

However, if the losses made in any year outweigh the gains, the losses can be carried forward. If in a future year, gains exceed any losses and the annual exemption, these past losses can also be offset against the gains before CGT is payable. The losses can continue to be carried forward until such a situation arises, making this a useful tax planning tool.

It also needs to be remembered that CGT rules state that losses only occur when they ‘crystallise’ – i.e. when the shares are sold. Anyone owning shares which are currently trading at a loss, with little prospect of recovery, can choose to make the best of a bad situation by selling them at the right time. If they are sold in a year where the seller has no capital gains, the loss can be carried forward, potentially increasing the tax-free gains in future years.

For more information please contact us.

 

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