At a loss

Trading losses

If you carry on a trading business, profession or vocation in your own name, or through a partnership, on a commercial basis with a view to making a profit, there are reliefs available in the event that you make a loss.

In particular, it should be possible to claim to offset the loss against your other income for either the tax year of the loss, the previous tax year or both. If your income is insufficient to enable full relief to be claimed, it may be possible to treat any unused loss as an allowable loss for Capital Gains Tax (CGT) purposes.

In addition, the 2008 Pre-Budget Report and the 2009 Budget included further extensions to the above loss rules for 2008/09 and 2009/10. For these tax years, unrelieved losses of up to £50,000 (after applying the above relief against income) can be carried back against any profits from the same trade in the two tax years prior to that (eg against 2006/07 and 2005/06 for a 2008/09 loss). Any loss carried back is set against the later year first.

The deadline for making a claim is the first anniversary of the tax return filing deadline for the tax year concerned.

There are also specific loss rules relating to losses made in the early years of a trade. Losses made in the first four years of starting a trade can be deducted in calculating taxable income for the three tax years prior to the one in which the loss is made. In contrast to the above, any loss carried back is set against the earliest year first (eg a loss made in 2008/09 could be carried back to 2005/06 with any remaining loss set against 2006/07 and then 2007/08).

Please note; there are restrictions to loss relief where you do not play an active role in the business. Speak to your private banker to arrange a meeting with a tax specialist to discuss your individual circumstances.

Capital losses

Where you make a capital loss in a tax year, a claim has to be submitted to HMRC within five years and ten months of the end of the tax year to enable you to utilise the loss. Any capital loss must be set against capital gains of the same tax year first, irrespective of whether the gains would otherwise be covered by your annual exemption for the year.

Currently, any unused losses, once claimed, can be carried forward indefinitely. Carried forward losses are set against the first available gains arising but only to the extent that any gains exceed the annual exemption for a tax year. If you own any assets which are now worthless (e.g. Woolworths shares) it is possible to make a ‘negligible value’ claim in respect of any loss.

With regard to quoted shares, HMRC produce a list of shares that they accept have become of negligible value. In respect of unquoted shares or other assets it would be necessary to be able to demonstrate to HMRC that the assets are now worthless should they enquire into any claim. Please do provide details to your usual tax contact if you believe this is relevant to your tax affairs.
 
In some circumstances beneficial relief may be available for losses incurred in respect of specific share disposals (including a deemed disposal by way of a negligible value claim). This relief enables an individual to claim for the loss to be offset against income in the year of the loss, the previous year or both.
 
Shares that qualified for relief under the Enterprise Investment Scheme are qualifying shares for this relief. In addition, shares acquired by way of subscription in unquoted trading companies may also qualify. However there are strict conditions for relief that would need to be reviewed in connection with the company and shareholding.