What is an allowable loss for capital gains tax?
Answered 11 March 2026
Here is a comprehensive answer on what constitutes an allowable loss for capital gains tax (CGT) purposes.
What the law says
Definition and computation
An allowable loss is a loss accruing on the disposal of an asset, computed in the same way as a chargeable gain would be computed on that disposal. All the provisions of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) that distinguish chargeable gains from non-chargeable gains apply equally to distinguish allowable losses from non-allowable losses.
Claim requirement
A loss accruing in a year of assessment is not an allowable loss unless the person gives notice to HMRC quantifying the amount of that loss (under TCGA 1992 s.16(2A)), with the notice treated as a claim for relief under ss.42–43 of the Taxes Management Act 1970.
When a loss is NOT allowable
A loss is not an allowable loss if it accrues at a time when, had a gain accrued instead, that gain would not have been chargeable to CGT for that tax year.
Additionally, under TCGA 1992 s.16A, a loss is not an allowable loss if:
- it accrues directly or indirectly in consequence of, or in connection with, any arrangements, and
- the main purpose (or one of the main purposes) of those arrangements is to secure a tax advantage (being relief, repayment, or avoidance of a charge to CGT, corporation tax, or income tax).
How allowable losses are used
Allowable losses may be deducted from gains in whichever way is most beneficial to the taxpayer, irrespective of the rate of tax at which the gain would otherwise have been charged. However:
- Losses may not be deducted further than is necessary to eliminate the gains.
- No part of an allowable loss may be relieved more than once.
- So far as an amount has been relieved under the Income Tax Acts, it may not be further relieved under TCGA.
- Non-UK residents may only deduct allowable losses accruing on disposals of UK-situated assets.
- Allowable losses can only be carried back to an earlier tax year in the case of death (TCGA 1992 s.62).
HMRC guidance / practice
Claiming the loss
Losses accruing are not allowable and may not be deducted from chargeable gains unless they have been claimed in a quantified amount. In practice, the notice of loss may simply be the inclusion of details of the loss within an individual's personal tax return and supporting computations. There is no specific claim form required.
Order of deduction
HMRC guidance confirms the following order for deducting losses from chargeable gains in a year of assessment:
- Allowable losses accruing in that year — deducted even if the net gains fall below the annual exempt amount;
- Unused allowable losses brought forward from earlier years — but not so as to reduce net gains below the annual exempt amount;
- Particular losses carried back from a later year — but not so as to reduce net gains below the annual exempt amount.
Consequences of not including a loss in the return
The Upper Tribunal has confirmed that for a loss to be "allowable", it must first be included in the SA return for the year in which the loss arose. If a loss is not included in the return, it will not be an allowable loss and cannot be carried forward.
Anti-avoidance (tax schemes)
The Upper Tribunal dismissed a taxpayer's appeal where options were found to be interlinked with no separate commercial existence, forming part of an indivisible planned transaction — the disputed loss was construed against the whole transaction and no allowable loss arose.
Citation sources
Read the full decision in Howard Peter Schofield v The Commissioners for HM Revenue and Customs: [2011] UKUT 306 (TCC). CAPITAL GAINS TAX – ALLOWABLE LOSS – Tax scheme involving options – the Options entered into were interlinked – no separate commercial existence – part of an indivisible process – planned as a single continuous operation – disputed loss construed against the whole transaction involving the four Options – no allowable loss -– Appeal dismissed by Tax Chamber on substantive disput
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