Turn losses to your advantage
Investors who have made investment losses could turn their misfortune to their advantage if they report losses to the HM Revenue & Customs before the self-assessment deadline.
Since 1996/1997 it has been necessary for investors to formally declare losses to the Revenue if they wish to use them to offset against future capital gains. However, there is concern many people suffering losses for the first time might be unaware they can reduce their tax bill in this way.
With £200 billion wiped off the FTSE between April 2007 and April 2008, many investors who have lost out over the past year are being urged not to ignore this “silver lining”.
Mike Warbuton, partner at Grant Thornton, says: “People who regularly deal in shares should be aware of this but it will probably catch out people who made losses for the first time.”
James Tucker, partner at Larkin & Gowen, is also concerned that for many investors, who have experienced several years of growth, this might be the first year they have realised any losses.
“The current personal allowance for CGT is £9,600, so anyone above this limit will have to pay 18% CGT. However, investors should remember to take into account their losses as this might bring them back below the threshold,” he explains.
The self-assessment deadline for 2007/08 is 31 October 2008, or 31 January 2009 if you are doing it online. Losses can be reported up to five years after the first 31 January following the tax year you made the loss so investors who haven’t reported any losses from as far back as the tax year 2002/03 would still have time to do so before 31 January 2009.
Tim Schofield, technical consultant at Alexander Forbes Financial Services, urges investors to be cautious before realising any losses purely for tax reasons. “You really ought to discuss this with your investment adviser, if you have one, or a tax professional before you do anything to make sure you do what's right for you.”
He adds that most people suffering potential losses since the start of this tax year won’t be able to record them yet as you can’t do so until the losses have been actually realised.