Key takeaways
- Capital losses are set against gains of the same tax year first, even if that wastes your £3,000 annual exempt amount.
- Unused losses can be carried forward indefinitely, and are then used only to bring gains down to the exempt amount.
- You must report a loss to HMRC within four years of the end of the tax year in which it arose, or you cannot use it.
- If an asset becomes worthless, a negligible value claim lets you treat it as sold and crystallise the loss.
- Losses on some unquoted trading company shares can be set against income, which can be worth far more.
A capital loss arises when you sell or dispose of an asset for less than its allowable cost. Losses are valuable because they reduce the gains you pay Capital Gains Tax (CGT) on, but only if you report them properly and in time.
Using losses in the same tax year
Losses arising in a tax year must be set against gains of the same year before anything else. This happens automatically and cannot be restricted, even if it means your gains fall below the £3,000 annual exempt amount (AEA) and part of the AEA is wasted.
Example
In 2026/27 Ali makes a gain of £8,000 on shares and a loss of £6,000 on a fund.
| Amount | |
|---|---|
| Gain | £8,000 |
| Less same-year loss | (£6,000) |
| Net gain | £2,000 |
| Covered by the £3,000 AEA | (£2,000) |
| Taxable gain | £0 |
£1,000 of Ali’s AEA is wasted. If the timing is flexible, it can be better to realise losses in a year with larger gains.
Carrying losses forward
Losses not used in the year they arise are carried forward to future years without time limit. Losses brought forward are used differently from current-year losses: only as much as is needed to bring your net gains down to the AEA, so the AEA is never wasted.
Example
Ali has £20,000 of losses brought forward and makes a gain of £10,000 in 2027/28. He uses £7,000 of the brought-forward losses, bringing his net gain down to £3,000, which the AEA covers. £13,000 of losses carries forward to the next year.
The reporting deadline
You must claim a loss by reporting it to HMRC within four years of the end of the tax year in which you made it:
- on your Self Assessment return, or
- in writing to HMRC if you are not in Self Assessment
A loss made in 2022/23 must be claimed by 5 April 2027. Unreported losses cannot be carried forward and are lost.
Losses you cannot use freely
- Connected persons: a loss on a disposal to a connected person, such as a relative or a company you control, can only be set against gains on disposals to that same person.
- Assets exempt from CGT: no loss is allowed on assets that would have been exempt from gains, such as private cars, ISAs and most chattels sold for under £6,000 (with a limited restriction for chattels).
- Losses in the year of death: losses in the tax year of death can be carried back against gains of the previous three tax years, latest first.
- Theft: a theft is not a disposal, so stolen assets do not give a capital loss, though insurance proceeds can create a gain or loss.
Negligible value claims
If an asset you still own has become of negligible value, for example shares in a company that has gone into liquidation, you can make a negligible value claim. You are treated as selling and immediately reacquiring the asset at its negligible value, which crystallises the loss. The claim can be backdated to any date in the previous two tax years, if the asset was already of negligible value then. HMRC publishes a list of quoted shares it accepts as being of negligible value.
Setting share losses against income
If you subscribed for new shares in an unquoted trading company, including shares qualifying for EIS or SEIS, and you make a loss on them, you can elect to set the loss against your income of the year of the loss or the previous year, instead of against gains. Relief at your Income Tax rate (up to 45%) can be worth far more than relief against gains. Relief against income can be limited by the general cap on Income Tax reliefs (the greater of £50,000 or 25% of adjusted total income), so check whether it applies to your shares.
Losses on loans to traders
If you lent money to a UK resident trader for use in their business, and it becomes irrecoverable, you may be able to claim a capital loss on the loan.
Spouses and losses
Each spouse or civil partner has their own losses, which cannot be transferred to the other. But because transfers between spouses are free of CGT, an asset standing at a gain can be moved to the spouse who has losses before it is sold, so their losses absorb the gain.
Frequently asked questions
How long can I carry forward capital losses?
Indefinitely, as long as you reported the loss to HMRC within four years of the end of the tax year in which it arose.
Do I have to report a capital loss?
Yes, if you want to use it later. You must report it within four years of the end of the tax year of the loss.
Can capital losses reduce my Income Tax?
Generally no, but losses on shares you subscribed for in unquoted trading companies, including EIS and SEIS shares, can be set against income.
What is a negligible value claim?
A claim to treat an asset that has become almost worthless as sold and reacquired at that value, crystallising a capital loss while you still own it.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.