Lose some, win some: offsetting a capital loss against a capital gain

Q&A: Dominic Coyle answers your personal finance questions

Question

I made a loss on a foreign property a number of years ago. The property was declared and fully compliant with Revenue. At the time of disposal I declared the loss in my annual tax return.

Am I right to understand that I can set the amount off against future gains, as I hope to have some profits on an employee-leveraged share scheme where the gains are subject to capital gains tax.

My question relates to the process: if I make a gain that is less that the previous loss, do I have to contact Revenue to advise that I am setting off the capital gains tax due, against the earlier losses, or how does this work? Mr CF

Advice

The first thing is to confirm that, yes, you are correct, you can offset a capital gain against a capital loss incurred in the same year – or in previous years where that loss has not already been offset against subsequent gains.

You have the outstanding loss on the foreign property and, under tax law, you cannot be liable to capital gains tax on subsequent gains until that has been allowed for.

And yes, you do have to notify Revenue about your gain and any offsetting loss.

On the more practical side of things, how do you do this? When you make a capital gain in a given year, you are obliged to file a CG1 capital gain return to Revenue. For gains made up to the end of November, you need to file a return by December 15th of the same tax year. For gains made in December, the return is due by the end of January in the following tax year.

Section 9 on page 2 of the CG1 form asks for details of any losses arising in the current year that should be offset against your capital gain.

Section 10 asks for the amount of any losses being carried over from previous years and this is where you would enter the amount of the loss you sustained on the foreign property sale.

Only after that, at section 11, does the annual capital gains tax exemption get taken into account before, in section 12, you calculate the net chargeable gain for the period.

The annual capital gains tax exemption is €1,270. However, you should remember that unused capital losses are used before the exemption is allowed for.

So, if you had a gain of, say, €10,000 in the current year and previous losses of €8,000, you would have a net gain this year of €2,000, which, after the exemption is applied, would leave you with a liable gain of €730, taxed at 33 per cent.

However, if your previously accrued losses were €10,000, one would cancel out the other. You would not apply the threshold and then carry over €1,270 of losses to a future year.

  • Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice