losses brought forward

ddavis

Hey, I have my PTAX exam on weds and im struggling with losses bought forward.
theres a question in the BPP book assesement 3, the lady had losses 2013/2014 btought forward of £7700- she made a gain of £15,000 and a loss of £500 in 2014/15 tax year so I automaticatlly assumed she would use all her losses against that but the answers say she uses only £3500 of her losses from the previous year and carries the rest forward? why Is this?

shamil91

Hi there,

I am assuming that your exam will be based on Finance Act 2014, because exams for personal tax are always based on the previous tax year so exam is on Tax year 2014/2015 . Right in order to answer your question, a lady has losses bought foward of £7,700 but then made a gain of £15,000 along with a loss of £500. Firstly to answer this question you must remember that the annual exemption (capital allowances) is £11,000. So she has made a gain of £15,000 but we have also made a loss in tax year 2014/2015 and 2013/2014. So we can clear the loss of £500 (made in tax year 2014/2015). So now the chargeable gains will be £15,000 - £500 = £14,500 but then we still are allowed to reduce the chargeable gains as the capital allowance is £11,000. So now we have to clear a portion of the 2013/2014 loss of £7,700, we can not use all the amount because then the capital allowance will be wasted we want to make use of the capital allowance so we would say we can not reduce the chargeable gains to go below £11,000 otherwise wasted annual exemption. So we have a chargeable gain of £14,500 to make use of the annual exption we would then reduce the chargeable gains to make sure it makes £11,000 that way we pay no taxes on the chargeable gains as we have only made gains equal to our annual allowance (tax free). So it would be £14,500 - £11,000 which gives us £3,500 that means that from the £7,700 we would reduce the loss to £7,700 - £3,500 = £4,200 which will be carried forward and relieved (offset/deducted) against next avaliable profit. But in relation to the question it would be £3,500 deduct that means that our chargeable gains in the year after deducting the loss of £3,500 from the gains of £14,500 will be £11,000 but we are allowed to have chargeable gains for the tax year (2014/2015) of £11,000 with out being taxed.

Hope this helps you out sorry for the long answer just thought might aswell break it down for you

Kind regards

Shamil