Must I let Revenue know of a loss before I can use it to cut tax bill?

A family member incurred a capital loss of €150,000 selling a house in 2012 purchased in 2005. Would that family member have had to complete a tax return showing that capital loss back in 2005 in order to carry it forward to 2023, for example, if they had a chargeable capital gain in that year?

Mr D.D.

I have to admit that when I first saw this question, the answer seemed obvious to me. How would Revenue allow you claim losses against a profit, if you hadn’t notified them of the loss in the first place? But apparently it is not that straightforward.

The system on capital gains is fairly clear. You are charged tax at 33 per cent on any net gain you make selling assets in any year over and above the €1,270 CGT tax free allowance. The “net” in that last sentence provides for offsetting any losses you make in the same year against your gains before assessing tax.

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The issue arises if you have no gains against which to offset your losses, or if the losses incurred exceed any gains you might have made. In these cases, any losses remaining unused at the end of the year are carried over to the following year or years until they can offset a subsequent gain.

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And here’s the thing. Apparently, you do not have to notify the Revenue Commissioners.

I’ve had a look at the tax return form to remind myself and it asks only for “amount of unused loss(es) from prior year(s) available for, and offset against chargeable gains above”. Mind you, a couple of lines down, it also asks for “unused loss(es) from prior year(s) for carry forward to” the current tax year.

So the answer is that you don’t need to notify Revenue of losses unless and until a subsequent gain arises against which you want to offset those losses but, at that time, you’ll also need to tell them what, if anything, remains for future offset.

This is confirmed on page 3 of the Tax and Duty Manual covering allowable losses under capital gains tax. It states: “Where an allowable loss arises in a chargeable period and there is no chargeable gain against which it may be offset in that chargeable period, there is no requirement for a person to include the loss in a tax return for the chargeable period in which the loss arises.”

I gather from the same document that you cannot claim back losses incurred before 1974-75 which was news to me and only goes to show I am not as familiar as I thought I was with section 31 of the Taxes Consolidation Act 1997.

Kidding aside, once a loss is claimed, it can be challenged by Revenue, so your relative would be well advised to keep documentation confirming how the loss arose until such time as it has been used to offset any gain – and for four years thereafter.

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