Capital Losses, How to Offset Against Gains

The Offset Rules

Capital losses from the same tax year must be set against capital gains from that same year first, before the annual exempt amount is applied. You cannot choose to defer current-year losses, they must be deducted. If your losses exceed your gains in a year, the net loss is carried forward to future years.

Losses brought forward from earlier years are treated differently. They are only applied to the extent necessary to reduce the net gain to the annual exempt amount (£3,000 for 2026/27). So if you have £15,000 of gains and £20,000 of brought-forward losses, you do not apply all £20,000, you apply only £12,000 (to bring the net gain down to £3,000, which is then fully covered by the AEA and bears no CGT). The remaining £8,000 of brought-forward losses is preserved and carried forward again. This rule prevents losses from being wasted by being applied against gains that would have been exempt anyway.

Reporting Losses

Capital losses are not automatically identified by HMRC. You must claim them, either on a Self Assessment tax return or by writing to HMRC if you are not within Self Assessment. The claim must be made within four years of the end of the tax year in which the loss arose. For a loss in 2022/23, the deadline to claim is 31 January 2027. Losses that are not claimed within the four-year window are permanently lost.

On a Self Assessment return, capital losses are reported in the Capital Gains pages (SA108). You enter both gains and losses for the year, and HMRC's calculation applies them in the correct order. Carried-forward losses from previous years must also be entered on the return each year they are used, even partially. Keep a running log of your brought-forward losses, it is easy to lose track across multiple tax years.

Negligible Value Claims

If an asset has become effectively worthless, for example shares in a company that has gone into liquidation, but you have not yet formally disposed of them, you may be able to make a negligible value claim. This allows you to treat the asset as having been sold and immediately reacquired at the negligible value, crystallising a loss even though no actual sale has occurred. You can specify a date in the past (going back up to two prior tax years) for the deemed disposal, provided the asset was of negligible value at that date.

The claim is useful for extracting a loss from an investment that is stuck, either because the shares are in a suspended company, the asset has no buyer, or disposal is otherwise impractical. HMRC maintains a list of companies where negligible value claims have been accepted, which speeds up the process. For assets outside that list, you must demonstrate that the asset has no, or negligible, value at the claimed date.

Selling at a Loss to a Connected Person

Sales to connected persons, which includes your spouse, civil partner, children, siblings, parents and companies you control, do not create allowable CGT losses. If you sell an asset to a connected person at a loss (whether at arm's length or at an undervalue), that loss is not deductible against other gains. It is a 'clogged' loss, which can only be set against gains arising on later transactions with the same connected person.

This rule exists to prevent artificial loss creation within families. The no-gain/no-loss rule for spousal transfers means you cannot give an asset to your spouse, have them sell at a loss, and use that loss against your own gains. The connected-person rules also mean that selling a loss-making investment to your adult child at market value still produces a clogged loss if they are a connected person. Genuine arm's-length sales to unrelated third parties are not affected.