Capital losses are an important part of the UK capital gains tax system, governed primarily by TCGA 1992 s.16 and explained in HMRC's Capital Gains Manual at CG15800. When you sell an asset for less than its allowable cost, the resulting loss can be used to reduce your CGT liability. This guide explains what counts as a capital loss, how losses are offset against gains, how to carry losses forward, and the reporting requirements you need to be aware of.
What counts as a capital loss?
A capital loss arises when the disposal proceeds (the amount you receive from selling an asset) are less than the allowable costs (the acquisition cost plus incidental costs such as broker fees and stamp duty). The loss is calculated using the same share matching rules as gains - you must apply the same-day rule, 30-day rule, and Section 104 pooling to determine the correct cost basis before calculating whether a disposal results in a gain or loss.
Not all losses are allowable. Losses on assets that are exempt from CGT (such as assets held within an ISA, gilts, or qualifying corporate bonds) cannot be used to offset gains on other assets.
In-year loss offset
Under TCGA 1992 s.2, capital losses realised in the same tax year as capital gains are automatically offset against those gains. This is not optional - HMRC requires in-year losses to be fully applied, even if doing so reduces your net gains below the annual exempt amount.
Critical rule
In-year losses must be fully offset against in-year gains, even if this reduces your net gains below the £3,000 annual exempt amount and effectively "wastes" part of the AEA. You cannot choose to preserve in-year losses to carry forward if there are gains available to offset them against.
Example - in-year loss offset
In the 2024/25 tax year, Alex has:
- Gains of £5,000 from selling shares in Company A.
- Losses of £4,000 from selling shares in Company B.
The in-year losses must be offset in full:
- Net gains: £5,000 - £4,000 = £1,000
Since £1,000 is below the £3,000 annual exempt amount, Alex owes no CGT. However, the "excess" loss offset is wasted - you cannot preserve in-year losses to carry forward if there are gains available to offset them against. In this case, £2,000 of the annual exempt amount goes unused and cannot be carried forward.
Carrying forward capital losses
If your total capital losses in a tax year exceed your total capital gains, the excess losses can be carried forward indefinitely to offset against gains in future tax years. There is no time limit on how long losses can be carried forward.
However, there is an important restriction on how brought-forward losses are used: you are only required to apply enough brought-forward losses to reduce your net gains to the level of the annual exempt amount. You do not have to use them to reduce gains below that threshold. Any remaining brought-forward losses continue to be carried forward.
Example - carrying forward losses
In 2023/24, Beth made capital losses of £8,000 and had no gains. She carries forward the full £8,000 to 2024/25.
In 2024/25, Beth has gains of £10,000 and no in-year losses. She applies her brought-forward losses:
- Gains: £10,000
- Less brought-forward losses (only enough to reach the AEA): £10,000 - £3,000 = £7,000 needed
- Beth uses £7,000 of her £8,000 brought-forward losses.
- Net gains after losses: £3,000
- Less annual exempt amount: £3,000
- Taxable gain: £0
- Remaining losses to carry forward: £8,000 - £7,000 = £1,000
Beth preserves £1,000 of losses for future years because she was not required to reduce her gains below the annual exempt amount.
Contrast with in-year losses
The distinction between in-year losses and brought-forward losses is critical:
| Type of loss | Must be fully offset? | Can reduce gains below AEA? |
|---|---|---|
| In-year losses | Yes - must be fully applied against in-year gains | Yes - may "waste" part of the AEA |
| Brought-forward losses | No - only use enough to reduce gains to the AEA | No - stop at the AEA level |
Reporting deadline
To claim capital losses and carry them forward, you must report them to HMRC in accordance with TCGA 1992 s.16(2A). The deadline is four years from the end of the tax year in which the loss arose. For example:
- Losses arising in 2024/25 must be reported by 5 April 2029.
- Losses arising in 2023/24 must be reported by 5 April 2028.
Do not miss the deadline
If you fail to report losses within this four-year window, you lose the right to carry them forward and offset them against future gains. File a Self Assessment return (or write to HMRC) reporting any capital losses, even if you have no tax to pay.
Negligible value claims
Sometimes shares become effectively worthless - for example, if a company goes into liquidation and the shares are suspended or cancelled. In these situations, you have not technically "disposed" of the shares in the normal sense, but you can make a negligible value claim.
A negligible value claim treats you as having sold and immediately reacquired the shares at their current negligible value (usually zero). This crystallises a capital loss equal to the allowable cost of the shares, which can then be used to offset gains in the usual way.
Key points about negligible value claims:
- The claim can be backdated up to two tax years before the tax year in which you make the claim.
- HMRC maintains a list of shares and securities that it has formally identified as being of negligible value, but you can make a claim for shares not on the list if you can demonstrate they are worthless.
- The loss is treated as arising on the date of the claim (or the earlier date you elect, if backdating).
Bed and breakfast implications for losses
If you sell shares at a loss and rebuy the same shares within 30 days, the bed and breakfast rule matches the sale against the repurchase. This typically reduces or eliminates the loss you can claim, because the cost basis for the matched shares becomes the repurchase price rather than the original cost from the Section 104 pool.
For example, if you sell shares at a loss of £1,000 (based on the pool cost) but rebuy them the next day at a slightly lower price, the loss on the matched shares will be much smaller - only the difference between the sale price and the rebuy price. To preserve a full loss, you must wait at least 31 days before repurchasing the same shares.
Losses on connected-party transactions
Special rules apply to losses on disposals to connected parties (such as family members other than your spouse or civil partner). Losses arising from sales to connected parties can only be offset against gains on disposals to the same connected party. They cannot be used against general capital gains. This prevents artificial loss creation through sales at undervalue to family members.
Planning with capital losses
Given the reduced annual exempt amount of just £3,000, tax-loss harvesting has become more relevant for UK investors. Strategies include:
- Reviewing your portfolio before the end of the tax year - identify underperforming holdings where a disposal would crystallise a loss.
- Offsetting gains and losses in the same year - if you have realised gains, consider whether selling a losing position can reduce your CGT bill.
- Timing disposals across tax years - if you have gains this year but expect gains next year too, you may want to realise losses this year to preserve the annual exempt amount for next year.
- Being mindful of the 30-day rule - if you intend to repurchase, wait at least 31 days or have your spouse purchase the shares instead.
How FiscalFox tracks capital losses
FiscalFox automatically identifies disposals that result in a capital loss and separates them from gains in your report. The platform shows your total in-year gains, total in-year losses, and the resulting net position. If you have losses to carry forward, the report clearly indicates the amount available for future tax years. This helps you complete the SA108 form accurately and ensures no losses are left unreported.