A. It is curious that the legislation refers only to gains when it would have been a straightforward matter to have worded this to explicitly include losses also. However, section 16(2) of TCGA 1992 makes clear that provisions in the capital gains Act that distinguish between “gains” on the one hand and “chargeable gains” on the other should also be read as making a similar distinction between “losses” and “allowable losses” as follows:
16(2) Except as otherwise expressly provided, all the provisions of this Act which distinguish gains which are chargeable gains from those which are not, or which make part of a gain a chargeable gain, and part not, shall apply also to distinguish losses which are allowable losses from those which are not, and to make part of a loss an allowable loss, and part not; and references in this Act to an allowable loss shall be construed accordingly.
Principal Private Residence relief would clearly come within the above provision, so a corresponding restriction must be made to the otherwise allowable loss that would have arisen.
However, all is not lost for your client: HMRC’s view is that a corresponding reduction to a loss does not arise in respect of “letting relief”. The rationale for this is that letting relief “restricts the chargeable gain by three limits, explained at CG64710. If no gain arises the limits cannot be applied. So the limits cannot be used to restrict a loss. If a person makes a loss on the disposal of their residence that loss would not be an allowable loss to the extent that private residence relief would have been available if a gain had accrued.” (CG65080).
On this basis, I can confirm that your client may indeed claim a reduced capital loss.
If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
