Writing off capital gains against past share loss

[practitioner]

I lost somewhere around £20,000 around technology bubble bursting time.I pay tax at top rate. I sell shares every now and then to at the very least take advantage of 1000 Euro tax free annual allowance.If I go above this, am I entitled to write off the gainns against 42% of £20,000 and the gaings from dividends?

 

[ClubMan]

You can offset previously incurred capital losses against subsequent capital gains. You can't, however, write capital losses off against income tax. Dividends are subject to income tax so they are treated separately from capital gains/losses.

 

[jello1000]

Hi Practitoner,

You mention that you occasionally sell shares to avail of your yearly tax free allowance, (i.e. €1270 or £1000), however if you sell shares at a profit, according to the revenue, you must deduct any prior losses incurred prior to applying your allowance. So if you sell shares at a profit this profit is deducted firstly from your origianl loss of €20000 in which case your allowance will not apply until such time as this loss has been used up. Therefore you would have to make a gain of more than €20000, (or such based on any gains previously deducted) in order to use your €1270 allowance.

Regards

 

[ClubMan]

Good point - while you can carry previously incurred losses forward indefinitely to be set against subsequent capital gains you must write them off against capital gains when they arise and before application of the annual CGT allowance as jello1000 outlines. However does this also apply in the case of a B&B trade in case that's relevant here?

 

[practitioner]

Thanks for replies.May I clarify what has been said to date.If I have lost c. 20000euro in the past on shares and in the interveening years I have made a profit of c.10,000 euro, then my standing re capital gains is -20,000 - stampduties - commissions + profit leaving a net capital loss therefore no tax owing? From what I have read am I correct in saying that I can never count the 1270 euro allowance as long as I am using the benefit of the capital loss? may I also ask am I correct when I say I need to take 22% of the overall divendend and pay this yearly as 20% has been held in 'withholding tax' and this must be paid whether you have profit or losses on the shares?

 

[ClubMan]

Thanks for replies.May I clarify what has been said to date.If I have lost c. 20000euro in the past on shares and in the interveening years I have made a profit of c.10,000 euro, then my standing re capital gains is -20,000 - stampduties - commissions + profit leaving a net capital loss therefore no tax owing?

Yes - but you may still need to make a return all the same to record this fact.

From what I have read am I correct in saying that I can never count the 1270 euro allowance as long as I am using the benefit of the capital loss?

Yes - previously incurred capital losses must be written off against gains first. In this case you don't get to use your annual CGT allowance until you have used up your previously incurred capital losses.

may I also ask am I correct when I say I need to take 22% of the overall divendend and pay this yearly as 20% has been held in 'withholding tax' and this must be paid whether you have profit or losses on the shares?

Yes - dividends are subject to income tax. Capital gains are subject to CGT. They are two completely separate taxes and you can't offset allowances for one against the other etc. In your case if you are paying 42% on income then you are liable for an additional 22% over and above the 20% dividend witholding tax already deducted at source.

 

[practitioner]

Thanks Clubman

 

[practitioner]

This just gets better. I feel like MacBeth and trying to wash a bloody stain off my hands.The more I read this site the more I scrutinise my affairs and feel that I should stick to unit trusts and forget about single share investing.I have reviewed my old records and find that I made a profit of 14250 euro in 2000 and a loss of 15000 in 2002 and a loss of 24000 in 2004 and had the sense to stick with blue chips after 2004 and make some profit in 2005.I now find that I did not pay CGT in 2000 and find it galling to think that I have to pay CGT on the back of this huge capital loss.The tech shares went belly up in late 2000 but I hadn't the intuition to sell them then and more or less became worthless in the subsequent years.Does this mean I have to admit to Cgt of 20% on 2000 gains along with penalties now and just use the losses thereafter to offset against possible future gains or is there any way I can off set the loss against the previous profit?I don't want a situation in years to come where I am liable to huge penalties.

 

[ClubMan]

The more I read this site the more I scrutinise my affairs and feel that I should stick to unit trusts and forget about single share investing.

Yeah - I can't really be bothered with all issues (e.g. broker charges, administrative hassle, storing share certs, chasing registrars, dividend income tax and CGT issues etc.) involved in direct shareholdings and tend to avoid them and go for low charges unit linked funds instead. I still have some Vodafone shares and participate in my company's ESOP/ESPP schemes because they're too good a deal to turn down but other than that I can do without the hassles of direct share investments for the moment.

I have reviewed my old records and find that I made a profit of 14250 euro in 2000 and a loss of 15000 in 2002 and a loss of 24000 in 2004 and had the sense to stick with blue chips after 2004 and make some profit in 2005.I now find that I did not pay CGT in 2000 and find it galling to think that I have to pay CGT on the back of this huge capital loss.The tech shares went belly up in late 2000 but I hadn't the intuition to sell them then and more or less became worthless in the subsequent years.Does this mean I have to admit to Cgt of 20% on 2000 gains along with penalties now and just use the losses thereafter to offset against possible future gains or is there any way I can off set the loss against the previous profit?I don't want a situation in years to come where I am liable to huge penalties.

If your question is can you write a capital loss off against gains made prior to the losses then the answer is no.