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This has reference to Samantha Dec 2007 question on loss relief as amended in BPP Revision Kit Page 29 Qn. No.22.
Here for the year 2013 – Trading Income is 7,290 and Chargeable gains – 21,000.
PA of 7,290 is claimed against trading income.
Annual exemption of 11,000 is claimed against Chargeable gains.
The taxable income is shown as 21K – 11K = 10,000 in the answer to the question in Page 111 of the kit.1) Now my doubt is can the balance of PA = 10,000 – 7290 = 2710 be not claimed against chargeable gains? Isn’t PA given on total income including chargeable gains?
2) The loss relief of the year 2015 is claimed against the trading profit and chargeable gains of the previous year to the maximum extent. However both Personal Allowance (10,000) and Annual Exemption for capital gain (11,000) is lost in making the loss relief. Can the tax payer opt to first claim PA and AE and then claim loss relief, since the loss can be carried forward indefinitely.
3) However in the year in which loss is incurred 2015, Personal allowance is claimed through the interest income of only 3,800. Does it mean that current year loss will not waste current year PA and AE, but when carried back will waste both.
I do not have the BPP revision kit but:
1) No – The PA if unused is wasted it CANNOT be set off against chargeable gains!
2) No – A loss is used firstly against Total Income NOT Taxable income and if the Total Income has then been reduced to nil (therefore the PA is wasted) then a separate claim against the chargeable gains of that tax year is available – this claim is also before the deduction of the AE!
3) No – If a loss is CLAIMED in the current tax year it will eliminate the interest income, thus wasting the full PA and if a claim against gains is then made, as per previous answer, it will reduce gains before the deduction of the AEThanks for the quick response. Regarding Item 3.
It never occurred to me that you can’t claim PA against chargeable gains.The loss occurred in 2014-15. That year apart from trading loss there was interest income.
The loss relief method adopted in the answer was
1) Not to claim any relief in the current year against interest income, but claim the PA against that income
2) Carry back the loss to the previous to claim relief against trading income and chargeable gains and
3) Carry forward to 2015-16 to claim the balance of the loss.The explanatory foot note to the question is as below
Quote ” Note. Loss relief has been claimed against general income and gains for 2013/14 since this gives relief at the earliest date and at the highest rates of tax. No claim should be made to set the loss against general income in 2014/15 since this is already covered by the personal allowance for that year”.This left a doubt lingering in my mind that when you claim loss relief against previous year profit and you lose PA and AE, can you then opt not to claim relief against other income of the current year and claim PA and also carry forward the loss to the next year?
Look at the note and of course the lecture where we make the point that the taxpayer may make a claim against total income in EITHER or BOTH of the current tax year and/or preceding tax year, so if you wish to make a claim in the preceding tax year and not the current tax year then that is perfectly ok!
You should also note that the claim against chargeable gains is a separate claim but may only be made in a tax year in which the claim against total income has firstly been made. That claim is made before the deduction of the AE, so you do not necessarily lose the AE which will be dependent upon the level of gains in the year and the amount of loss available to be relieved.
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