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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: the scope of the taxation of capital gains

In the tax year, Lena (higher rate taxpayer, no basic rate band left) has a current-year chargeable gain of £10,000 on an asset and a current-year allowable loss of £7,000 on another. She also has £5,000 of capital losses brought forward from earlier years. She has not used the annual exempt amount of £3,000 elsewhere. What is her net gain taxed and the carried-forward loss position?

No gain is taxable and the £5,000 of brought forward losses remain unused. Current-year losses are set against current-year gains first, leaving £3,000, which the £3,000 annual exempt amount covers, so no brought forward loss needs to be used.

  1. ANo taxable gain; brought forward losses of £5,000 remain unusedCorrect
  2. BNo taxable gain; brought forward losses of £2,000 are used leaving £3,000
  3. CTaxable gain £3,000 after using all losses
  4. DTaxable gain £7,000 after the annual exempt amount is ignored

Explanation

Current-year losses are set off first: £10,000 - £7,000 = £3,000. The annual exempt amount then covers this in full. Brought forward losses are only used to reduce gains down to the annual exempt amount, so none are needed and the £5,000 is carried forward. Using them unnecessarily wastes the loss.

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