capital loss

Adaeze bought MTN shares two years ago and sold them last month for more than she paid. Her brother Chidi bought Oando shares around the same time and sold his for less than he paid. Adaeze made a gain. Chidi made a capital loss, and there is nothing shameful about it, because the market moves the way it wants to move, not the way any of us plan.

A capital loss happens whenever you sell something you own, an asset, for less than you originally spent to acquire it. It is the mirror image of a capital gain. If you bought a plot of land in Epe for ₦3,000,000 and, because of some dispute over the title, you had to sell it quickly for ₦2,200,000, that ₦800,000 difference is your capital loss.

Here is the part that makes a capital loss almost useful. In many tax systems, you are allowed to use that loss to reduce the gains you made elsewhere, so you are not taxed as if you had a perfect year when you did not. Someone in the United Kingdom who sold one stock at a loss and another at a profit in the same tax year can often set the loss against the gain before working out what tax, if any, is owed.

In Nigeria, capital gains tax rules mean a loss on one disposal can, depending on the asset and the rules in force, be considered when working out your overall tax position rather than being simply ignored. It is worth checking with a proper adviser or the Federal Inland Revenue Service, because these rules shift, but the principle stands. A loss is more than bad news, it is information the tax system sometimes lets you use.