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The examples in the following paragraphs illustrate how the rules work in some of the more complex circumstances.

Example - priority of losses

Mr Smith disposes of an asset (the 鈥渙riginal asset鈥�) in Year 1 for consideration including a right to deferred unascertainable consideration, realising a chargeable gain for CGT purposes of 拢58,000. He has allowable losses on disposals of other assets in the same tax year of 拢12,000. He also has unused allowable losses brought forward from years before Year 1 of 拢33,000. After taking into account the annual exempt amount (AEA) for Year 1 (assumed in this example to be 拢7,000) he is liable to CGT on 拢6,000.

In Year 7 Mr Smith disposes of the right which he received on disposing of the original asset. The allowable loss accruing on the disposal is 拢15,000. No chargeable gains accrue to Mr Smith in Year 7. He elects under the new provisions to treat the loss as a loss of Year 1.

The other losses (total 拢45,000) must be deducted in priority to the 拢15,000 loss. Consequently only 拢13,000 (拢58,000 - 拢45,000) of the loss of 拢15,000 is deducted from the chargeable gain in Year 1, leaving 拢2,000 (拢15,000 - 拢13,000) to be carried forward and deducted from gains of Year 8 and, to the extent to which it remains unused, later tax years.

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Example - deducting losses from gains of more than one earlier year

Mrs Potter sells a piece of land she owns in three separate tranches, realising chargeable gains for CGT purposes as follows-

• in Year 1, 拢100,000
• in Year 2, 拢250,000
• in Year 3, 拢75,000.

She also realises allowable losses in Year 2 of 拢225,000. The AEA for all 3 years is 拢7,000.

She receives a right to deferred unascertainable consideration on the disposal in Year 2 of the asset on which the gain 拢250,000 is realised. She disposes of the right in Year 6 and realises an allowable loss of 拢40,000 on the disposal.

Mrs Potter makes an election under the new provisions in relation to the allowable loss of 拢40,000. The loss is treated as a loss of Year 2. It cannot be treated as a loss of Year 1, because the right was conferred on Mrs Potter on the disposal in Year 2 and the loss may not be treated as a loss of a year earlier than the year in which the right was conferred.

The Year 2 chargeable gains remaining after deduction of the other allowable losses of that year, which are deducted in priority to the loss on disposal of the right, are 拢25,000. 拢25,000 of the total loss 拢40,000 is therefore deducted from the Year 2 gains and the remainder, 拢15,000, is carried forward to Year 3 and deducted from the chargeable gains for that year. The 拢15,000 loss may be deducted in this way because -

• Mrs Potter made a disposal of the original asset in Year 3,
• she is liable to CGT for that year,
• the allowable losses brought forward from Year 2 may all be deducted from the chargeable gains of Year 3 without reducing the amount of the chargeable gains below the level of the AEA for Year 3 (拢7,000).