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When is a Loss Not a Loss?

Capital Gains Tax (CGT) is a complex tax, but the guiding principle is straightforward. It taxes gains on the disposal of non-trading assets. For a person, profits on trading transactions are taxed to Income Tax. Losses on non-trading disposals can be set against capital gains made in the same tax year or carried forward to be set against gains in future years…but not, it seems, all losses.

A recent case dealt with the situation in which a man paid a deposit of £72,000 for a property, but was subsequently unable to complete the purchase, with the result that he lost the deposit.

He claimed that the forfeited deposit was a loss for CGT purposes and so would be available to be set against a future capital gain. Not so, said HM Revenue and Customs (HMRC). He had never completed his contract and therefore there was no 'disposal' – there was no transaction for CGT purposes at all.

The Upper Tribunal accepted HMRC's argument, leaving the lost deposit as a pure loss which cannot be used to mitigate the tax on a future gain.

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The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.