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Self-assessment: use those losses!

Created:

20 October 2008

Written by:

Moira O'Neill

If you fill in a self-assessment tax return, then don't forget the new 31 October deadline for paper returns. Previously, the deadline for submitting paper and online tax returns was 31 January, but from this year anyone filing on paper must do so by 31 October, or risk a £100 penalty. Online returns can still be submitted up until 31 January.

The market collapse over the past year has forced many investors to weigh up their capital losses rather than gains. Over £200bn was wiped off the FTSE between April 2007 and April 2008.

Any investors skilled or lucky enough to have made capital gains above £9,200 during this period are required to declare those gains to HM Revenue & Customs (HMRC).

But many investors are sitting on an overall capital loss after the market meltdown, and should be looking to file their capital gains tax (CGT) SA108 return in order to notify HMRC and formally claim their losses.

Once reported to HMRC, these losses can be carried forward indefinitely and used to offset against gains at any time in the future, to help reduce prospective tax bills.

Losses need to be reported to HMRC within five years after the 31 January following the end of the tax year in which the loss arose. So there is still time for investors to claim losses going back as far as the 2002-03 tax year.

If HMRC is not notified of the loss within the five-year time frame, it is too late and the loss is 'lost'. Once claimed, there is no limit within which a reported loss must be used. Any historical losses claimed can be accumulated and carried forward to offset against gains incurred many years from now.

Although HMRC removed taper relief and indexation relief with effect from April 2008, investors won't benefit from the simplified regime until April 2009. Investors filing their 2008 tax returns are still faced with working their way through HMRC's complicated pre-2008 share identification rules and indexation and taper calculations.

Dary McGovern, managing director of www.timetotrade.eu, which has developed a CGT calculator to help investors manage and calculate their liabilities, says: "The market has played a tough hand to investors this year, so it makes sense for them to consolidate losses they have made and bank them for when sunnier times return."

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