With a turbulent start to 2022 for both the financial and crypto markets, you may have found that your share and crypto asset investment portfolio are now in the red. Although this is not a position any investor wants to find themselves in, for tax purposes it is important to record these losses as they may be available to reduce your tax liability, either now or in the future.
What can I claim?
In most cases, UK individuals trading and investing in stocks, shares and crypto assets are subject to Capital Gains Tax (“CGT”) on their gains from investments. Likewise, where assets are sold at a loss, Capital Losses become available to reduce taxable gains in the same tax year, or if unavailable to use in the current year, carry forward to reduce gains in following tax years. Unfortunately, there is no mechanism in the UK to carry back capital losses to offset against taxable gains incurred in earlier tax years.
CGT is currently 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers on most stocks, shares and crypto assets. These rates increase to 18% and 28% respectively for gains on the disposal of UK residential property. This means capital losses can be used to reduce current or future CGT of up to 28%.
Care must be taken to ensure that losses are available to claim. As an example, if you reacquire an asset within 30 days the gain or loss on that asset may not become taxable / available to utilise.
Recording and reporting a loss
You must report a capital loss to HMRC to be able to claim it in the current or future tax year. Losses are usually reported on your self – assessment tax return for the tax year in which the loss is incurred, however a letter to HMRC can be prepared if you don’t usually prepare tax returns or forget to include it within one.
Losses can be reported to HMRC at any time up to 4 years after the end of the tax year in which the loss was incurred. This could mean that you can go back and report losses incurred at any time after 6 April 2018 (at the time of publication of the post).
My crypto / shareholding has lost all value but I haven’t sold it – can I still claim this loss?
In certain cases, yes you can!
HMRC allow taxpayers to make a “negligible value claim” for assets that have become virtually worthless. This claim can only be made in respect of a tax year in which that asset became of negligible value, i.e. for claims made for the year ended 5 April 2022 the asset must have become worthless in that tax year and not since.
Claims can be backdated two years in cases where you may have forgotten to make a negligible value claim in earlier tax years.
Unfortunately, you cannot carry back a capital loss claimed under a negligible value claim, or make a claim against an asset which lost its value after the tax year. As an example, any claims made on Luna (Terra) crypto asset holdings would need to be made in respect of the year ended 5 April 2023, and can be offset against taxable gains of the current 22/23 or future tax years.
What if my investments are held by a company?
Broadly companies are also able to utilise capital losses against any chargeable gains made in the same corporation tax accounting period for which the loss arose or carry forward to be offset against any chargeable gains in future periods.
Unlike individuals, companies are subject to corporation tax (currently 19%) on all gains made in the accounting period. This may make capital losses incurred by a company slightly more beneficial for a few if its accounting period is such that its recent losses fall into the same accounting period as its capital gains. Companies are also able to make negligible value claims on assets which have become near worthless in the accounting period for which they lost its value.
With the rate of corporation tax expected to rise to a maximum of 25% from 1 April 2023, this could also mean any capital losses may be better to carry forward to offset against gains of future periods when tax rates are higher.
Further assistance and support
Should you have further questions on how to execute a capital loss or would like to undertake some tax planning to make use of your capital losses as effectively as possible, the team at Starbox will be pleased to help. Please get in touch with your usual contact or at our contact page and a member of our team will be in touch.