How can I use capital losses to reduce my tax bill?
Answered 11 March 2026
Here is a comprehensive answer on how capital losses can be used to reduce your CGT bill.
How Capital Losses Reduce Your CGT Bill
What the law says
The basic charge and deduction mechanism
Capital gains tax is charged on the total amount of chargeable gains accruing to a person in a tax year after deducting (a) any allowable losses accruing in the same tax year, and (b) so far as not previously deducted, any allowable losses accruing in any previous tax year.
Order of set-off
The order in which losses are deducted is as follows:
- Current-year losses — deducted from total chargeable gains of the same tax year, even if this takes net gains below the Annual Exempt Amount (AEA).
- Losses brought forward from earlier years — deducted next, but only to the extent necessary to reduce net gains to the level of the AEA (i.e. they are not wasted by being set against gains that would in any case be covered by the AEA).
- Losses carried back (in exceptional circumstances only) — also not so as to take net gains below the AEA.
Optimising the set-off
Subject to any specific restrictions on particular losses, allowable losses and the AEA can be deducted in the way that is most beneficial to the individual under TCGA 1992, s.1F — generally against gains charged at the highest rate.
Carrying forward unused losses
Losses brought forward are used only if net gains (total gains less total losses of the year) exceed the AEA. The amount of brought-forward losses used is the smaller of: (i) the total losses brought forward, or (ii) the amount needed to reduce net gains to the AEA level. Any excess is carried forward indefinitely.
Notification requirement
A capital loss is allowable only if it has been notified to HMRC within the normal time limit for claims (s.43(1) TMA 1970). There is no specific claim form — in practice, including the loss in a Self Assessment return and supporting computations is sufficient notification.
HMRC guidance / practice
Practical example — using prior-year losses
Miss E made a capital loss of £30,000 in 2021-22, reported it in her Self Assessment return, and did not use it in 2022-23 or 2023-24. In 2024-25 she realises a net gain of £55,000 on a residential property. She can choose to apply all £30,000 of her carried-forward losses, reducing her gain to £25,000. She then applies her AEA of £3,000, leaving £22,000 chargeable to CGT.
Same-year losses and timing
When reporting a property disposal through the CGT on UK Property Account, you can only use same-year losses that arose before the completion date of the disposal being reported. Anticipated (future) losses cannot be used. Losses arising after the completion date can be used in the normal way via the Self Assessment return.
Choosing how to allocate losses
Because CGT rates differ (e.g. residential property vs. other assets), careful allocation of losses and the AEA can minimise the overall tax bill. HMRC guidance notes that this will require careful record keeping.
Special/restricted losses ("clogged losses")
Certain losses have specific restrictions on how they can be used (e.g. "clogged losses" on disposals to connected persons). If such rules apply, they must be taken into account — see HMRC's Capital Gains Manual at CG15800.
Summary table
| Loss type | When deducted | Can reduce below AEA? |
|---|---|---|
| Current-year losses | First, against same-year gains | Yes |
| Prior-year losses (carried forward) | Second, against net gains | No — only down to AEA level |
| Losses carried back (exceptional) | Third | No — only down to AEA level |
Citation sources
se, and this figure is fed into the calculation. The system provides a link to further information about losses: www.gov.uk/capital-gains-tax/losses and additional guidance on the notification and use of losses can be found in the CG Manual at CG15800. Example: Miss E made a capital loss of £30,000 in the tax year 2021-22 and reported it to HMRC in her Self-Assessment return. These losses were not used against other gains in 2022-23 or 2023-24 and are available to carry forward. In 2024-25 tax y
Part 1 Capital gains tax and corporation tax on chargeable gains Chapter 1 Capital gains tax Charge to capital gains tax Capital gains tax 1 1 Capital gains tax is charged for a tax year on chargeable gains accruing in the year to a person on the disposal of assets. 2 As a result of section 4 of CTA 2009, capital gains tax is not charged on gains accruing to a company, but corporation tax is chargeable instead in accordance with— a section 2 of CTA 2009, b Chapter 2 of this Part, and c other rel
The details entered into this section of the return feed into the calculation, see example at 2.2.3 above. The user is asked if they want to include other losses made in the same tax year as the gain they are reporting. The system will indicate that they must have made these losses before the date they entered in the first section as the completion date. Anticipated losses (losses which the person expects to make in the future but has not yet made), cannot be accounted for as part of the return
Introduction Relief for Losses Unused allowable losses Special rules for losses arising before 1996-1997 Losses accruing are usually not allowable, and hence may not be deducted from chargeable gains, unless they have been claimed in a quantified amount, see CG15800. TCGA92/S16(2A) states a capital loss will be allowable only if it is notified within the normal time limit for claims see Section 43(1) TMA70. Exceptionally, a loss may be allowable if it is the subject of a competent claim, such as
net chargeable gains below the annual exempt amount. Capital Gains Tax is then charged on the excess of the net chargeable gains over the annual exempt amount, see CG18000C. Gains accruing to a person in a tax year may be chargeable to capital gains tax at different rates. Thus the tax effect of losses and the annual exempt amount set off against those gains can vary. Subject to specific restrictions that may apply on the use of particular losses (see CG15800), allowable losses and the annual e