Deceased died early 2022/23, non IHT chargeable estate. House sold late 22/23 realising a gain of around £13K, CGTR completed and tax of c.£3,000 paid within time limits.
In 2023/24, a couple of small shareholdings were sold realising a loss only in the hundreds of £££s but more significantly, in 2024/25 another shareholding was sold which resulted in a loss of £33,000.
This is an informal Estate so tax is assessed for the period of administration in which case, can the PR’s claim relief for the loss on the shares against the gain on the property, and obtain recovery of tax paid under CGTR?
My research so far suggests otherwise. There’s obviously no issue setting losses against gains in the same tax year, or even in later tax years but as I understand it, losses sustained by personal representatives cannot be passed on to beneficiaries and can only be relieved against chargeable gains accruing to the personal representatives in the same or subsequent tax years. This does rather fly in the face of giving the PR’s the option to set losses against gains in the most beneficial way.
It would be unfair if no relief was possible simply because the gain arose in a separate and prior tax year to the loss.
My view would be that the informal basis is just to allow the tax to be dealt with outside of the SA system but within that the normal rules would apply so I do not see you can look at the admin period as one period for CGT purposes so no backward relief for the losses. The PR’s could have appropriated the shareholding to the beneficiaries ahead of the sale to get the losses in their hands.
The authors of the book “Trust Taxation etc.” 5th Ed. Para 51.82 say that gains and losses can be netted off if they arise from disposals within the AP. They cite as authority CG30730 but it does not say this at all. Nor can I find another para in the Death and PRs section of the Manual which does so in terms though there are hints that HMRC look at the AP as a whole and not the usual tax year basis. Frankly s1E(7) TCGA seems a formidable legal obstacle. Helpsheet HS282 is totally silent on this matter offering no comment in para 5 contrasting with the lengthy example of losses in the year of death in para 4.2.
The authors go on to say that net losses expire at the end of the AP (the timing of which is elastic and HMRC are not too nitpicking about it in practice) and warn that PRs should try to ensure that it does not end before a loss-making sale with no carry back. The key to this dilemma is usually that if the sale proceeds are essential for due administration the sale is unlikely to occur before the end of the AP. The contrary argument is that it can end when liabilities are quantified even if not discharged until later but until the sale of an asset necessary to achieve that it surely must mean that the AP can only end after the disposal and agreement of the tax liability if that also matters. PRs can surely arrange matters favourably and if not must argue it out with HMRC as best they can.
In your place I would take a robust position but draw attention specifically to the facts: that all gains and losses fall within the AP. The other fact, that the loss is in a tax year later than the gain, will be obvious from the disposal dates in the return. If there is no enquiry then s29(5) TMA 1970 should prevent a discovery. The bind is that until the enquiry window closes PRs have to be careful not to over-distribute. You might therefore seek instructions to obtain direct confirmation from HMRC which will of course flag up the issue.
Thank you Jack. HS282 was my first (disappointing!) port of call, absolutely nothing of use on this aspect despite, as you say, elaborating on the year of death situation. It’s almost as if it didn’t strike them…….
I still do not see how it is possible within s1(3) TCGA and s16(2A) TCGA.
Surely even under the informal basis you must still calculate and report liabilities on a tax year basis to account for changes in tax rates etc and AE’s for CGT. I would view the fact that HS282 is silent is because it is not possible.
Points all noted, thanks. Much as I enjoy an argument (with HMRC), I am tending to go with my first gut instinct of “no”.
I think my doubt was in positing that “tax” could be determined according to the informal procedures but on further consideration, TSEM7410 only outlines the circumstances in which the informal procedures will apply, not how any income and gains will actually be taxed.
So I accept normal rules apply in which case, the only circumstances in which cgt losses can be carried back would be for deceased cases, which is obviously not in point.