Turmoil in financial markets has left savers and investors sitting on huge paper losses — but there is a silver lining.

With careful planning, you can make worthwhile tax savings, getting tax relief on your children’s education costs and mortgage interest, and passing assets tax-effectively to the next generation.

It might also be worth crystallising losses, because these can be offset against future gains — great if you want to take advantage of a subsequent market bounce.

“While the market turmoil has inflicted significant pain on many, this is a golden opportunity for tax planning,” said Sophie Dworetzsky, a partner at the law firm Withers. “It is possible to turn investment losses to a tax advantage.”

We offer our top tax tips to take the sting out of the downturn.

CRYSTALLISE CAPITAL LOSSES

Investors who realise a capital loss in any one tax year can, in general, carry this forward indefinitely to offset against gains in future years. Do you have assets the value of which has become negligible? A loss can be claimed on assets worth “next to nothing” without the need to sell them.

“If the value goes up again in future, gains will be computed from the negligible value instead of the original cost, but in the meantime you can set off the loss against other gains,” said George Bull, head of tax at the accountant Baker Tilly.

You must notify the taxman of losses within five years. Say you bought shares for £20,000 some time ago. They rose in value to £80,000, but have recently plunged to £40,000. On sale, there would be be a taxable gain of £20,000. After taking into account your annual exemption of £9,600, you would pay 18% capital-gains tax (CGT) on £10,400 — so £1,872.

Say, though, you had bought other shares for £8,000 in a company that has gone under. This loss can be offset against the above gains, reducing your tax bill to just £432 (18% of £2,400 gain).

Sole traders and partnerships can also offset trading losses against future profits; individual partners’ other income or gains in the same or previous tax year; and income of the previous three years if you are in your first four years of trading.

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