Using capital losses to cut Capital Gains Tax and the claim deadline

A capital loss is what you make when you sell or dispose of an asset for less than it cost you. That loss can be set against capital gains you have made elsewhere, reducing the Capital Gains Tax bill on them. You must first set any loss against any other capital gains made in the same tax year, even if the gains are covered by the annual exemption¹.

Anything left over can be carried forward to later years. You can claim losses up to four years after the end of the tax year in which they were incurred, so a loss from 2022-23 can still be claimed up to 5 April 2027². HMRC does not send a bill for Capital Gains Tax: you work out the liability yourself and report it⁴.

How capital losses reduce Capital Gains Tax

Capital Gains Tax is charged on the profit when you dispose of an asset, not on the whole sale price. A loss works in the opposite direction: it is a negative figure that cancels out positive ones. If you have made gains in a year and a loss on another asset, the loss reduces the amount on which tax is charged. Losses are reported alongside gains on the SA108 Capital Gains summary³.

The rates that apply to what remains depend on the asset and the relief. Gains subject to business asset disposal relief are charged at 14%, and gains on carried interest for individuals at 32%⁸. Those are the rates in the official rates and allowances table, and they sit alongside the standard rates for other gains.

To work out a loss you need the same information HMRC asks for on a gain: details of how much you bought and sold the asset for, the dates when you took ownership and disposed of the asset, other relevant details such as costs of buying, selling or making improvements and any tax reliefs, and calculations for each capital gain or loss you report⁷. Losses are reported on the SA108 Capital Gains summary page of a tax return⁹.

One quirk of the system is that losses are not optional in the year they arise. You must first set any loss against any other capital gains made in the same tax year, even if the gains are covered by the annual exemption¹. You cannot park a same-year loss to use later while leaving an exempt gain untouched.

Losses in the same tax year come off gains first

The order of use is fixed. Same-year losses go against same-year gains before anything else, and before the annual exemption is applied to what is left. Only once that has happened does any surplus loss become available to carry forward.

This matters because it changes how much of the annual exemption is actually used. If a loss wipes out gains that would otherwise have been covered by the exemption, the exemption is not used up on those gains, and the loss has effectively been spent on gains that would have cost nothing. The rule is not a choice.

The same principle explains why some investors deliberately realise losses and gains in the same year. The purpose was to realise either a loss or a gain, as the loss could be used to offset other gains made during the same tax year, while the gain could help to make use of the annual tax-free capital gains allowance¹⁰. HMRC has since tightened the rules on buying the same shares back quickly, so the timing of any repurchase matters.

Carrying unused losses forward to later years

Once a loss has been reported, any part not used in the year it arose can be carried forward. You can carry over capital losses that have been reported². The loss then sits available to reduce gains in future tax years, for as long as it takes to use.

The carry-forward mechanism is not the same as the pension annual allowance carry-forward, which lets you use unused annual allowance from the previous three tax years¹¹. Capital losses have no three-year limit on how far forward they can go once claimed in time. What they do have is a four-year limit on how far back you can reach to claim them.

There is one thing you cannot carry forward: the annual exempt amount. You can't carry forward any previous unused capital gains allowances¹³. If you do not use the exemption in a year, it is gone. Losses are different, which is why reporting a loss in a year with no gains can be worth doing even though it is not required.

The claim deadline: four years from the end of the tax year

You can claim losses up to four years after they were incurred². The same four-year window applies to claims for tax relief on job expenses, where claims must be made within four years of the end of the tax year in which the money was spent, and the tax year ends on 5 April¹⁴. Overpayment relief claims can usually be made for up to four years after the end of the tax year concerned¹¹.

For capital losses specifically, you normally need to claim or report losses within four years of the end of the tax year when you disposed of the asset¹⁵. A loss arising in the 2022-23 tax year therefore has a claim deadline of 5 April 2027.

Some claims run to different clocks. Under the foreign income and gains regime, you have until the anniversary of 31 January following the end of the tax year to which the claim relates, which is 12 months from the normal filing date¹⁶. Claims by personal representatives under section 124E have their own permitted period: four years from the end of the month in which the survivor dies, or if that ends later, six months beginning with the date on which the personal representatives first act as such¹⁷.

How to claim a capital loss with HMRC

There is no single form for a capital loss. The route depends on whether you already file a Self Assessment return.

1. Gather the figures. You need how much you bought and sold the asset for, the dates of ownership and disposal, costs of buying, selling or making improvements, any reliefs, and a calculation for each gain or loss⁷.
2. Report it on your return. Capital gains and losses go on the SA108 Capital Gains summary⁹. If the profit is over the amount HMRC allow, you will register for Self Assessment and file a tax return¹⁸.
3. Claim a forgotten loss separately if needed. If you have forgotten to report losses, you can claim them up to 4 years after the end of the tax year in which the loss arose¹⁹.
4. Keep the records. HMRC can ask to see the basis of the calculation, so retain the documents behind each figure.

If you are dealing with an estate, the process runs differently. If you cannot call the helpline, you must fill in form P1000 to tell HMRC who is dealing with the money, property and possessions of the person who died²⁰. If you are selling property belonging to the estate of someone who has died, you will need to include this information when reporting the estate to HMRC¹⁹.

If something goes wrong with how HMRC has handled a claim, there is a route through the complaints process: start by writing to the person dealing with your case, then ask for the complaint to be passed to an HMRC customer service adviser, then ask the Adjudicator to look into the matter²¹. For help with a claim, TaxAid publishes guidance on Capital Gains Tax and Self Assessment¹⁸.

Where a loss cannot be used

A capital loss only reduces capital gains. It cannot be set against income, and there are several places where that limit bites.

• Life insurance gains. Chargeable event gains are not capital gains, so capital losses and the annual exempt amount cannot be set against them⁵. The same applies to gains on foreign life insurance policies, which are taxable as income rather than capital gains⁶.
• Lapsed share options. If you do not exercise an option and it lapses you do not make an allowable loss for CGT purposes¹⁵.
• Child Trust Fund investments. Losses accruing on any disposal of account investments shall be disregarded for the purposes of capital gains tax²².
• Personal possessions below the threshold. Capital Gains Tax on personal possessions applies where disposal proceeds are £6,000 or more, so smaller disposals do not generate a chargeable gain or an allowable loss in the same way²³.
• Overseas rental income. Unless you let a furnished holiday residence, you won't be able to claim capital allowances for investments against your rental income, though capital expenditure can be offset against a capital gains bill when you sell the property²⁴.

There is also a rule against recovering the same loss twice. Where a Section 75 claim is made on a credit card purchase, you can't recover your losses from both the card issuer and another source²⁵. Section 75 covers the amount spent on the card plus full losses, sometimes including consequential expenses²⁵.

What records to keep

HMRC's list of what it wants for a capital gain or loss is specific: details of how much you bought and sold the asset for, the dates when you took ownership and disposed of the asset, other relevant details such as costs of buying, selling or making improvements and any tax reliefs, and calculations for each capital gain or loss you report⁷.

Keep those records for as long as the loss could still be used. A loss claimed within the four-year window and carried forward may sit unused for years, and HMRC can ask for the basis of the figure at any point while it is being relied on. The same discipline applies to other tax records: keep your payslips and your P60 for your records, because you will need them if you want to get a refund²⁶.

Where a claim involves assets that have lost value rather than been sold, the evidence is different. If your investment cannot currently be accessed, it may mean it has little or no value; if you can turn your investment into cash, sell it, or use it to get a loan from a reputable bank, the amount you could get counts as capital²⁷. That distinction decides whether a worthless-looking holding produces a claimable loss.