How to recover expiring capital losses thanks to BTPs

In Italy, taxation on financial instruments listed on regulated markets may vary depending on the type of activity and the regulations in force.
Here is a general overview for those who hold assets in the securities dossier under the administered savings regime, thus leaving out the securities dossiers under the managed savings regime, i.e.
the accounts relating to asset management mandates entrusted to the banks: 1) Interests and dividends The interests and dividends are the so-called "capital income" and are subject to a tax of 26%.
However, for some specific financial instruments, such as government bonds, Cassa Depositi e Prestiti bonds and postal savings bonds, a rate of 12.5% is applied.
2) Capital gains and losses Capital gains are instead "other income" and are arising from the sale of shares, bonds and other financial instruments at a price higher than the purchase price.
These are taxed at 26%, while capital gains on government bonds are taxed at 12.5%.
Any capital losses can be offset against capital gains for the period or deducted by the end of the 4th tax year following the year in which such capital losses actually occurred.
"Pending" capital losses in the portfolio have no tax value until the securities are actually sold and the loss is monetized.
The tax credit created by the capital loss is calculated at the same rate as the capital gain, depending on the financial instrument, be it 26% or 12.5%.
Even the redemption of bonds, of any type, creates a tax-relevant event, because being carried out at nominal value (i.e.
at par) it can lead to a capital gain (if the security was purchased below par) or a capital loss (if the security was was purchased above par).
3) Mutual fund Investments in mutual funds are subject to a 26% tax on capital gains realized on the sale of the units.
Capital losses can be offset against capital gains from other funds or deducted by December of the 4th tax year following the determination of the capital loss.
4) Taxation on current accounts and bank deposits Interest deriving from current accounts and bank deposits is subject to a tax of 26%.
Compensation of capital losses and capital gains The compensation of capital losses and capital gains, in the administered savings regime, is only possible within the category of various incomes, but is not possible between various incomes and capital income.
Coupons and dividends collected cannot be offset against capital losses incurred in the trading of shares, for example.
Offsetting a capital gain with a capital loss means relating two sales operations on two different securities, which obtained two opposite results, one generated a loss and the other generated a gain.
The compensation between losses and capital gains allows you to reduce the overall tax burden, as losses can be used to offset future gains, if these have been realized previously.
There is therefore the principle of temporal priority of the tax credit relating to the capital loss.
In order to pay less taxes on subsequent capital gains, you must first have set aside the capital losses, or first created them by selling securities at a loss.
The compensation principle applies even if minuses and pluses are created on the same day, selling the two separate financial assets on the same day.
The compensation does not operate if the loss on some securities is monetized after the monetization of the capital gains on other securities.
What to do with expiring capital losses It sometimes happens that in your managed securities dossier you have capital losses already set aside, but without having any capital gains to realise.
And it may happen that such capital losses are about to expire, that is, December 31 of the 4th fiscal year following the date of creation of such capital losses is approaching.
After that, they are lost forever, i.e.
the tax credit to be "spent" as compensation with future capital gains definitively dies.
Or you have "pending" capital losses, which appear on securities that have not yet been sold.
In this case you will have to monetise and certify such losses in the electronic archive of your custodian bank by proceeding with the sale of such securities on the market.
If you are in the situation just described – you have capital losses but no capital gains to make – there are 3 BTPs that you can buy at a price well below the redemption value, thus realizing significant capital gains and thus avoiding being taxed.
This is because you are able to "spend" those capital losses set aside years ago.
That is, we need to purchase bonds priced well below par which automatically "manufacture" for us, in our portfolio, the capital gain that we need and can use before the capital losses expire.
I will give some very simple examples based on market prices as of 20 March on the MOT market and on an investment base of 100,000 euros to make the understanding of the topic more effective: For capital losses that expire by 31 December 2024 Btp 0% 15/12 /2024 Issued on 12/16/2021 at a tax price of 100.29 Current price: 97.50 Total expense: 97,500 euros Repayment at 12/15/2024: 100,000 euros Capital gain: 3,500 euros Taxation: 3,500 x 12.5 % = 437 euros If you have previous total capital losses that generate tax credits equal to or greater than 437 euros, the yield of your BTP 12/15/2024 will not be taxed.
For capital losses that expire by 31 December 2026 BTP 0% 1/4/2026 Issued on 1/3/2021 at a tax price of 99.44 Current price: 93.70 Total expense: 93,700 euros Repayment at 1/4 /2026: 100,000 euros Capital gain: 6,300 euros Taxation: 6,300 x 12.5% = 787 euros If you have previous total capital losses that generate tax credits equal to or greater than 787 euros, the final capital gain of your BTP 1/4/2026 will not will be taxed.
NB: the refund will not be exactly 100.
In fact, on this BTP there is also a tax on the coupon income calculated on the tax price at auction of 99.44 cents but, being equal to 0.56 on 100 and limited only to days of possession from now until expiry, there will be a very light tax on the final redemption value.
BTP 0% 8/1/2026 Issued on 8/1/2021 at a tax price of 99.91 Current price: 92.80 Total expense: 92,800 euros Repayment on 8/1/2026: 100,000 euros Capital gain: 7,200 euros Taxation: 7,200 euros x 12.5% = 900 euros If you have previous total capital losses that generate tax credits equal to or greater than 900 euros, the final capital gain of your BTP 1/4/2026 will not be taxed.
NB: the refund will not be exactly 100.
In fact, on this BTP there is also taxation on the coupon income calculated on the tax price at auction of 99.91 but, being equal to 0.09 out of 100 and limited to the days only of possession from now until expiry, there will be a very light tax on the final redemption value.
So take advantage of it.
Your trusted financial advisor or your bank will be able to effectively represent your tax position in the managed savings regime and you will be able to decide accordingly.
|DISCLAIMER The information and considerations contained in this article should not be used as the sole or principal basis on which to make investment decisions.
The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.|