The CGT annual exemption operates in a similar fashion to the personal allowance for income tax: gains covered by the exemption are not taxed, but any unused exemption cannot be carried forward to be used in another tax year.
In the Autumn Statement Chancellor Jeremy Hunt cut the CGT annual exemption from £12,300 to £6,000 with effect from 6 April 2023, and announced another reduction to £3,000 to take effect from 6 April 2024.
Plans to sell
Where a taxpayer is planning to sell a property or a business this year, they need to factor in this reduction in the annual exemption. A delay in the exchange of contracts to beyond 5 April 2023, on say the sale of a residential property, could cost the seller an extra £1,764 in CGT.
It is the contract exchange date which fixes the timing of the sale for CGT purposes, although the property gains must be reported within 60 days of the completion date for the deal, which is usually some months later.
Root out losses
Taxpayers should be advised to review any capital losses they may have made in the past or current tax years. Where there have been no capital gains in the intervening period to use up the capital loss it is automatically carried forward to be used against gains in a future year.
To be eligible to be carried forward a capital loss must be claimed within four years of the end of the tax year in which it arose, so by 5 April 2023 for losses that arose in 2018/19.
Some categories of capital losses can be used more flexibly, for example against income for the current or pervious tax year. This applies to losses from seed enterprise investment scheme (SEIS) and enterprise investment scheme (EIS) shares, as well as shares in certain unquoted trading companies that qualify for share loss relief (ITA 2007, Pt 4, Ch 6).
Realising the loss
A capital loss is normally only realised when the asset is sold or destroyed. When a company is dissolved and the shareholders do not receive back the value subscribed, a capital loss will crystallise to the extent of the value lost on those shares.
Some taxpayers may have potential (not yet realised) capital losses from holding cryptoassets, following the crypto market crash in November 2022. Others may be holding shares or other securities which now have little or no value.
In either of these situations the taxpayer may wish to make a negligible value claim, if the shares or cryptoassets are still in existence.
This claim will create a capital loss, but the timing of such a claim could be important.
Timing is crucial
Where the negligible value claim is made in 2022/23 the capital loss will be set against capital gains arising in the same tax year before the deduction of the annual exemption. If there are no capital gains arising in 2022/23 or there are surplus losses after any gains have been covered by losses, those surplus losses carried forward to 2023/24.
Any capital losses which are brought forward are off-set against gains after deduction of the annual exemption, so the annual exemption for that year is not wasted. In view of the shrinking annual exemption it may be useful to have a brought forward loss in the bag to off-set against future gains.
Remember that to claim negligible value the asset must still exist at the time the claim is made, and the asset must have become of negligible value while it has been held by the taxpayer. If the asset had no value when it was acquired the negligible value claim will fail.
Check the list
HMRC regularly updates a list of quoted shares and securities which it agrees have negligible value. HMRC will generally accept negligible value claims for any shares or securities on this list.
Where the taxpayer is holding worthless unquoted shares they may need to provide evidence to HMRC that the shares are of negligible value. Rather than wait for HMRC to query the claim, the taxpayer should use form CG34 to request agreement to the share value from HMRC.
