CH82332 - Penalties for Inaccuracies: Calculating the penalty: Losses impact on potential lost revenue calculation: Losses available Capital Gains Tax example

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Deepak returns capital gains of £65,000 and notifies capital losses of £35,000 for 2010-11. He also has £25,000 unused allowable capital losses brought forward from earlier tax years. Deepak’s income uses up all his basic rate band so all gains (other than those qualifying for Business Asset Disposal Relief) are taxable at 28%.

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Gains

£65,000

Less current period losses

£35,000

Net gains

£30,000

Less losses brought forward

£19,900

Losses carried forward £5,100

£10,100

Less annual exempt amount

£10,100

Chargeable to CGT

Nil

The 2010-11 return is found to contain a careless inaccuracy in the calculation of the losses for the tax year. True allowable capital losses in the year are £13,000.

The potential lost revenue (PLR), assuming liability at 28% on his taxable amount, is

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Gains

£65,000

Less current period losses

£13,000

Net gains

£52,000

Less losses brought forward

£25,000

Losses carried forward NILÌý

£27,000

Less annual exempt amount

£10,100

Chargeable to CGT

£16,900

PLR is 16,900 x 28% = 4,732

The wrongly recorded current period loss has been wholly used by deduction from the gains so only the normal rule applies. No part of the wrongly recorded loss is unused so the 10% rule does not apply.