Using Losses to Reduce Your Capital Gains Tax

Introduction

If you've sold assets at a loss, you can use those losses to reduce the Capital Gains Tax you owe on profitable sales — both in the current tax year and in future years. Understanding how to claim and carry forward losses can significantly reduce your tax bill, but you need to follow HMRC's rules carefully to benefit from them.

What counts as an allowable loss

An allowable loss occurs when you sell (or 'dispose of') a chargeable asset for less than you paid for it. Disposing of an asset includes:

• Selling it
• Giving it away as a gift or transferring it to someone else
• Swapping it for something else
• Getting compensation for it, such as an insurance payout if it's been lost or destroyed

The same types of assets that create taxable gains can also create allowable losses, including:

• Personal possessions worth £6,000 or more (apart from your car)
• Property that's not your main home
• Shares that are not in an ISA or PEP
• Business assets
• Cryptoassets like cryptocurrency

How losses reduce your Capital Gains Tax

When you work out whether you need to pay Capital Gains Tax, you follow these steps:

1. Calculate the gain (or loss) for each asset you've disposed of during the tax year

2. Add together all your gains

3. Deduct any allowable losses

4. Compare the result to your tax-free allowance (called the Annual Exempt Amount)

For the 2025/26 tax year, the Annual Exempt Amount is £3,000 (or £1,500 for trusts).

You must deduct your losses from your gains before you compare your total to the tax-free allowance. This means losses are valuable even if your gains would otherwise be below the £3,000 threshold.

Using losses from the current tax year

You must use losses from the current tax year to reduce your gains in that same year, even if this brings your total gains below the £3,000 Annual Exempt Amount.

For example, if you made a £10,000 gain and a £5,000 loss in 2025/26, you must deduct the £5,000 loss, leaving you with £5,000 in gains. After deducting your £3,000 Annual Exempt Amount, you'd pay tax on £2,000.

You cannot choose to "save" current year losses for future use — you must use them in the year they occur.

Carrying losses forward to future years

If your losses exceed your gains in a tax year (or you have losses but no gains), you can carry the unused losses forward to future tax years. There's no time limit on how long you can carry losses forward.

However, when using losses brought forward from earlier years, you only use enough to bring your gains down to your Annual Exempt Amount. You don't have to use all your carried-forward losses if doing so would waste your tax-free allowance.

For example, if you have £10,000 in gains in 2025/26 and £8,000 in losses carried forward from previous years, you would only use £7,000 of those losses (bringing your gains down to the £3,000 Annual Exempt Amount). The remaining £1,000 of losses stays available for future years.

Reporting your losses

If you're registered for Self Assessment, you need to report losses in your tax return. This applies even if your total gains are below the Annual Exempt Amount.

The reporting threshold for gains depends on the total amount you sold assets for (not your actual gain):

• If you sold assets for more than £50,000 in the tax year, you must report this in your Self Assessment return, even if your gains are below £3,000

Different rules apply when reporting losses, so you should report all allowable losses to ensure you can use them to reduce future tax bills.

If you sold a UK residential property, you may need to report and pay any Capital Gains Tax using a Capital Gains Tax on UK property account, depending on when you sold it and whether you have tax to pay.

Losses you cannot use

You cannot claim losses on:

• Assets you give or sell to your husband, wife or civil partner (unless you were separated and did not live together at all in that tax year)
• Assets you give away to charity
• Assets that don't create taxable gains, such as those held in ISAs or PEPs, UK government gilts, Premium Bonds, or assets from betting, lottery or pools winnings

These transactions are either tax-free or have special rules that prevent you from claiming losses against other gains.

Keeping records

You should keep records of:

• What you paid for each asset
• What you sold each asset for
• Costs associated with buying and selling (such as professional fees)
• Details of any losses you're carrying forward

Keep these records for at least one year after the Self Assessment deadline (31 January) following the tax year you're claiming the loss in. If you're carrying losses forward, keep the records until you've used all the losses or for at least five years, whichever is longer.

Working with jointly owned assets

If you dispose of an asset you jointly own with someone else, you only pay Capital Gains Tax on your share of the gain. The same applies to losses — you can only claim your share of any loss.

Sources

• Capital Gains Tax: what you pay it on, rates and allowances

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.