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Hello sir,
Could you please give me the solution
Tanushq made the following
chargeable gains and allowable losses:Chargeable gain
Year1 12000
Year 2 15000Allowable loss
Year 1 (34000)
Year 2 0Assume 2014/15 tax rates and allowances apply in both years
How much of the allowable loss remains to be carried forward at the end of year 2?
Answer is 18000
Here is the rule: the capital losses at first should be relieved from the current year’s capital gains at full level(no partial relief) , which means current year’s annual exemption would be lost. After deducting losses against current year, any remaining should be carried forward against next year’s capital gains, but only to the level of 11,000(maximum), to allow AE to be deducted.
Gains and losses of the year must be netted off – hence year 1 net loss c/f = 22,000
This is then deducted from the net gains of future tax years but ONLY as to reduce those net gains down to the level of the AEA – hence year 2 net gains = 15,000 so use 4,000 of b/f loss to reduce net gain to the level of the AEA. In this way the losses b/f are not wasted reducing gains that would be covered anyway by the AEA.
Losses c/f therefore = 22,000 – 4,000 = 18,000
note the important difference between the treatment of current year losses and b/f losses
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