In Revenue & Customs Brief 60/09, HMRC outlines its interpretation of how losses previously calculated under the old rules for share exercised under certain employee share option schemes must now be amended when offsetting such losses against current gains.

HRMC under R&C Brief 30/09 changed its treatment of allowable deductions arising from shares acquired before 10 April 2003 on exercise of employee share options. Where the shares are treated as having been acquired at market value, that value is the full measure of their deemed cost of acquisition. The cost is not augmented by any amount chargeable to income tax on the exercise of the option.

The change does not affect most people disposing of shares acquired through approved SAYE option schemes and approved Company Share Option Plans. Neither does the change have any effect in relation to disposals of shares acquired on the exercise of options on or after 10 April 2003 where section 144ZA TCGA provides that the market value rule does not displace the consideration given when an option is exercised after 9 April 2003.

Where a pre-1996–97 loss from a share scheme effected by the change in treatment has been calculated but remains unused, it may have been shown in a pre-Self Assessment return or included in the summary record of the totals of unused losses in a Self Assessment return. The quantum of the loss is not ‘final’and must be recalculated as per HMRC's current treatment of such losses. It is interesting to note that a taxpayer cannot have the quantum of a loss brought before the First-tier Tribunal until such time as a gain arises against which the loss can be set. This statutory position was endorsed in the tax case Tod v South Essex Motors (Basildon) Ltd 60TC598.

Where a loss accrues on a disposal in years before 1996–97, HMRC cannot open an enquiry into that loss until it is deducted from chargeable gains. So if a loss arose on a disposal in 1995–96 and is deducted from chargeable gains accruing in 2009–10, HMRC may enquire into that loss as part of an enquiry into the 2009–10 return. There is no statutory mechanism for agreeing or litigating the quantum of the loss arising on the disposal made in 1995–96 in advance of the 2009–10 enquiry. Any such loss deducted in 2009–10 has to be computed in accordance with our current understanding of the law.

Details of the basis for utilising losses in a number of scenarios such as those outlined above and more, are now available under Revenue & Customs Brief 60/09 which can be accessed at http://www.hmrc.gov.uk/briefs/cgt/brief6009.htm