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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: the basic principles of computing gains and losses

Ingrid sold a house to her brother, a connected person, for £150,000 in June 2025, making an allowable loss of £40,000. In 2025/26 she also had a gain of £30,000 on shares sold to an unconnected buyer. In January 2026 she sold land to her brother at a gain of £12,000. The annual exempt amount is £3,000. Which statement is correct?

The connected person loss can be set only against gains on disposals to the same connected person. Ingrid uses £12,000 against the land gain to her brother and carries forward £28,000 under the same restriction. The £30,000 share gain remains taxable after the annual exempt amount.

  1. AThe £40,000 loss can only be set against gains on disposals to her brother, so the £12,000 gain is covered and the remaining £28,000 is carried forwardCorrect
  2. BThe £40,000 loss is set against the £30,000 share gain, leaving £10,000 carried forward
  3. CThe £40,000 loss is set against all gains of 2025/26, producing a net loss with the exempt amount wasted
  4. DThe £40,000 loss is disallowed completely

Explanation

Losses on disposals to a connected person can be used only against gains on disposals to that same connected person. The £12,000 gain on the land sale to her brother is relieved, leaving £28,000 of loss to carry forward for the same restriction. The £30,000 share gain to an unconnected buyer cannot be reduced, so it is taxed after the annual exempt amount. The loss is not disallowed outright.

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