Claiming losses from the disposal of investments

Introduction

If you have realised a loss from the disposal of investments, such as shares, you must treat the loss in the correct manner.

Losses are either capital losses or revenue losses and will be categorised according to whether the relevant income has been classed as capital gains or ordinary (business) income.

The taxation of your investments in prior years is relevant when working out the treatment of the loss in the current year. If there has been minimal change in the nature of your investment activity, it is likely that the same tax treatment applies in the current year.

For example, your activities may be consistent with that of a shareholder in previous years and the current year. Such activities include purchasing shares for the purpose of earning income from dividends. In a previous year you may have sold shares and claimed the 50% capital gains tax discount. If you have realised a loss in the current year, you would be expected to claim this as a capital loss.

	If you are a shareholder and you have not disposed of the investment, any loss in value of the investment is not a capital loss at this time and is not considered for tax purposes until it is realised (that is, until you dispose of the asset).
	We issued a Taxpayer Alert on 21 May 2009 as an 'early warning' describing an arrangement whereby taxpayers seek to re-characterise their shareholding status from that of a long-term capital investor to a trader in shares. For more information, see TA 2009/12 Re-characterising capital losses as revenue losses.