Capital Losses: How to Use Them

Key facts

Current-year losses must be set against current-year gains — even if this reduces gains below the AEA.
Brought-forward losses are used more flexibly — only offset enough to reduce gains to the AEA level.
Capital losses can only be set against capital gains, not income (with limited exceptions).
You must report losses to HMRC within 4 years of the end of the tax year they arise.
Losses between connected persons can only be set against gains from the same connected person.

What Is a Capital Loss?

A capital loss arises when you dispose of a chargeable asset for less than its allowable cost. The loss is calculated in the same way as a gain: disposal proceeds minus allowable costs. If the result is negative, you have an allowable capital loss.^[1]

Not all losses are “allowable”. Losses on assets that are exempt from CGT (such as your main home, cars, ISA investments, or gilts) are not allowable losses and cannot be used to reduce other gains.

Current-Year Losses

Losses arising in the current tax year must be set against gains of the same tax year. This is a mandatory offset — you have no choice in the matter.^[2]

The AEA trap: Current-year losses must be offset even if this reduces your net gains below the £3,000 Annual Exempt Amount (AEA) for 2025/26. For example, if you have £5,000 of gains and £4,000 of losses in the same year, your net gain is £1,000 — and you have “wasted” £2,000 of your AEA. You cannot carry the £4,000 loss forward.

This contrasts with brought-forward losses (see below), which you can use more selectively.

Brought-Forward Losses

If your current-year losses exceed current-year gains (creating a net loss for the year), the excess can be carried forward indefinitely to future tax years. When using brought-forward losses:^[2]

You only need to use enough to reduce your net gains to the AEA level
You can choose how much to use (subject to the above)
Unused losses continue to be carried forward

Example

Component	Amount
Gains in 2025/26	£25,000
Losses brought forward	£30,000
Losses used (to reduce gains to AEA: £3,000)	£22,000
Taxable gain (equals AEA — so no CGT due)	£3,000
Losses carried forward to 2026/27	£8,000

Reporting Losses to HMRC

Capital losses must be reported to HMRC to be usable. The reporting deadline is 4 years from the end of the tax year in which the loss arose:^[3]

Loss in 2025/26: report by 5 April 2030
Loss in 2024/25: report by 5 April 2029

You report losses on your Self Assessment tax return (form SA108, capital gains pages). If you are not within Self Assessment, you can write to HMRC to claim the loss.

Tip: Always report your capital losses, even if you have no gains in the current year. If you miss the 4-year deadline, the losses are permanently lost and can never be used. It costs nothing to report them, and they may prove valuable in a future year.

Losses Between Connected Persons

If you make a loss on a disposal to a connected person (such as a family member, a company you control, or a trustee of a settlement you created), the loss can only be set against gains arising on disposals to the same connected person.^[2]

Connected persons include:

Spouse or civil partner
Brothers, sisters, ancestors, and lineal descendants (and their spouses)
Business partners and their spouses/relatives
Companies controlled by you or your connected persons
Trustees of a settlement where you are the settlor

Special Rules for Share Losses

Losses on shares receive some special treatment:

EIS/SEIS shares: Losses on qualifying EIS/SEIS shares can be set against income (instead of or in addition to capital gains), which may provide relief at a higher tax rate
Negligible value claims: If shares become worthless, you can make a negligible value claim to crystallise the loss without needing to sell
Share matching rules: The CGT share matching rules (same-day, 30-day, and Section 104 pool) affect the calculation of gains and losses on share disposals

What Losses Cannot Do

Cannot offset income: Capital losses cannot reduce income tax (except for qualifying EIS/SEIS losses)
Cannot be carried back: Unlike trading losses, capital losses cannot be carried back to a previous year (except on death)
Cannot be transferred: You cannot transfer capital losses to your spouse, civil partner, or anyone else
Cannot arise on exempt assets: Losses on your main home, cars, gilts, and ISA investments are not allowable

Frequently Asked Questions

Do I have to use capital losses against gains in the same year?

Yes. Losses arising in the current tax year must be set against gains of the same year, even if this reduces your gains below the £3,000 Annual Exempt Amount. This is a mandatory offset — you cannot choose to carry the loss forward to preserve your AEA.

Can I set capital losses against my income?

Generally no. Capital losses can only be set against capital gains. The exception is for qualifying EIS and SEIS share losses, which can be set against income instead of (or as well as) capital gains.

What is the time limit for claiming capital losses?

You must report capital losses to HMRC within 4 years of the end of the tax year in which the loss arises. For example, a loss in 2025/26 must be reported by 5 April 2030. If you miss this deadline, the loss cannot be used.

Can I create a loss by selling assets to my spouse?

No. Transfers between spouses are treated as “no gain, no loss” for CGT purposes. You cannot create an allowable loss by selling an asset to your spouse or civil partner at below market value.

Sources

Capital Gains Tax: what you pay it on — GOV.UK
Capital Gains Manual: losses — HMRC
HS227 Losses — HMRC
Report and pay Capital Gains Tax — GOV.UK