I made a £32k loss when I sold my parents’ house in 1989: Can I still use it to cut a capital gains tax bill now? HEATHER ROGERS replies
In 1989 I sold my parents’ house. Due to a fluctuating market I was advised in writing by HMRC of a £32,000 capital gains loss.
I thought nothing of this letter at the time and with the passage of time and having moved house several times I have lost it.
Is there any way of offsetting this against capital gains I have now made?
Capital gains tax: Can I use a £32k loss on a house sale in 1989 to cut my bill now?
Heather Rogers replies: You’ll be pleased to know that as an individual you can indeed carry forward capital losses indefinitely to set against future capital gains.
Capital gains tax came into force in 1962 and many amendments to the legislation have been made over the years.
Let’s look at how it works first, then turn to how you can use your loss back in the 1980s to reduce a current CGT bill.
What is capital gains tax?
For individuals, the tax is charged on a person in the tax year of assessment, both on UK residents and those who make disposals of assets in the UK but are not resident for tax.
The tax is paid on the gains made on the profit on the sale of an asset such as property, shares, antiques and works of art, but not on wasting assets such as cars.
You do not usually have to pay capital gains tax on the sale of your main residence.
What are current CGT rates?
If you’re a higher or additional rate taxpayer (40 per cent or 45 per cent respectively) the CGT rate is 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets.
For basic rate taxpayers (20 per cent), if your taxable gain plus your total taxable income fall within the basic income tax band of £12,571 to £50,270, the CGT rate is 18 per cent on residential property and 10 per cent on other gains.
If the amount is higher, the CGT rate is 28 per cent on residential property and 20 per cent on other gains.
The Government has more information on CGT rates here.
How does capital gains tax work?
The profit is calculated on the proceeds less the purchase price, or the value at which the asset was acquired, for example through inheritance of an asset.
You can also deduct costs incurred in buying and selling the asset, or money spent on improving the asset and increasing its value.
The rates of tax depend on your other earnings and there are special rates for the sale of residential property, such as a second home or a property you rent out.
You receive an allowance each tax year (£12,300 in 2022/23) on which you do not have to pay capital gains tax.
The gains you make which exceed this allowance are taxed at the rate applicable to your total earnings, including the capital gain itself, and the type of asset sold.
If applicable, you may be able to claim Business Asset Disposal Relief on the sale of your own business and certain shares.
The tax is payable by 31 January following the end of the tax year, with the exception of that due on residential property gains, like the sale of second homes or properties rented out.
This is payable within 60 days of sale and must be accompanied by a Property Gains Disposal Return to HMRC.
What are capital losses?
Capital losses are simply where the proceeds from disposal of an asset are less than the amount for which it was purchased or acquired.
The same allowable costs such as acquisition and disposal costs and improvement costs can be included in the calculation which might increase the loss further.
You can’t claim a loss on the sale of an asset that is exempt from capital gains tax.
How do you offset your losses?
Capital losses made in the same tax year as any gains can be offset against the gains, or carried forward against gains of a future tax year.
HEATHER ROGERS ANSWERS YOUR TAX QUESTIONS
There is currently no time limit on how long they can be carried forward. You can make the claim on your self-assessment tax return and also on your Property Gains Disposal Return to HMRC.
You can’t carry back capital losses to earlier years and they cannot be offset against income, except in a couple of very limited circumstances.
What if you haven’t made any gains, but you have made a loss you want to report to HMRC?
Claim for your loss by including it on your self-assessment tax return.
If you do not complete a tax return, you can write to HMRC instead. Make sure you include your calculation and details of the disposal.
You do not have to report losses straight away – you can tell HMRC up to four years after the end of the tax year that you disposed of the asset and made a loss.
However, the rules are different for losses made before 5 April 1996.
You can still tell HMRC about these now.
Also, you must deduct more recent losses from any gains first, before deducting pre-1996 losses.
What should they do now?
In your case, HMRC should know about your loss, so when you make your claim include it on your tax return.
It is worth including a note regarding the letter you received from HMRC about the agreed loss, as well as explaining the original disposal.
However, as the loss falls under the pre-1996 rules, you will be able report it to HMRC again from scratch if necessary, even if the original paperwork that was submitted at the time has gone astray.
Ask Heather Rogers a tax question
Tax expert Heather Rogers answers our readers’ questions
Heather Rogers, founder and owner of Aston Accountancy, is our tax columnist. She is ready to answer your questions on any tax topic – tax codes, inheritance tax, income tax, capital gains tax, and much more.
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