Using capital losses

How losses work

A capital loss is set against capital gains, never against your income. The order is fixed and it matters.

1. Losses of the SAME YEAR              must be used in full,
                                        even if that wastes
                                        your exempt amount

2. The ANNUAL EXEMPT AMOUNT             applied to what remains

3. Losses BROUGHT FORWARD               used only down to the
                                        exempt amount, never
                                        below it

Why the order matters

Same-year losses are compulsory and are applied before the exempt amount, so realising a loss in a year with a small gain can waste the exempt amount entirely.

Brought-forward losses are more flexible: they are only used down to the exempt amount, so the exempt amount is never wasted by them. That difference is a genuine argument for timing loss disposals across tax years rather than bunching them.

Gain this year                        £4,000
Loss this year                       -£4,000
                                    --------
Net gain                                 nil
Annual exempt amount used              wasted

Had the loss fallen in the next year instead, the
£4,000 gain would have been covered by the exempt
amount and the loss would still be available.

Reporting a loss is what makes it exist

A loss must be claimed to be usable, and the time limit is four years from the end of the tax year in which it arose. Claim it late and it is gone, however real the loss was.

Once claimed, a loss carries forward indefinitely. There is no expiry on using it, only on claiming it in the first place.

Negligible value claims

If an asset you still own has become effectively worthless, shares in a company that has failed for example, you can make a negligible value claim. This treats you as having disposed of and reacquired it at nil value, crystallising the loss without needing to find a buyer for something nobody wants.

The bit HMRC does not spell out

Report losses in years when you have no gains at all. It feels pointless, because there is nothing to set them against and no tax at stake, so people skip it. That is exactly when the four year clock is running.

A loss reported in a quiet year sits waiting indefinitely and can shelter a large gain a decade later. An unreported one cannot, and by the time the gain arrives the window has usually closed.

You have reached the end

You now know what triggers CGT, how a gain is calculated, how income sets the rate, how pooling and matching work for shares and crypto, the 60 day property deadline, and how to make losses count. The exam covers all three modules.

Common mistakes

• Not reporting a loss in a no-gain year. The four year clock is running.
• Expecting losses to offset income. Capital losses meet capital gains only.
• Bunching losses with small gains. Same-year losses waste the exempt amount.
• Holding a worthless asset. A negligible value claim crystallises the loss.