Using Capital Losses to Cut Your CGT Bill

Not every disposal makes money, and the ones that lose can still be useful. A capital loss reduces the gains you are taxed on, so a poorly performing share sale, a crypto position closed at a loss, or a second property sold below cost can all take some of the sting out of a profitable disposal elsewhere. The catch is that losses do not apply themselves. They have to be reported to HMRC, they are set against gains in a fixed order, and there is a time limit for claiming them, so a loss that is never reported is simply money left on the table.

How losses are set against gains

Losses are applied in a specific sequence, and the sequence matters because it decides how much of your annual exempt amount survives. Losses made in the same tax year as your gains must be set against those gains first, before the annual exempt amount is applied. That is not always the outcome you would want, because it can waste part of the £3,000 exemption for 2026/27, but it is compulsory: same-year losses come off the top.

Losses brought forward from earlier years work differently and more favourably. They only reduce gains to the extent that the gains exceed the annual exempt amount, so a carried-forward loss is never wasted on gains that the exemption would have covered anyway. In a year where your gains are below £3,000, you use no brought-forward losses at all and keep them for later. This asymmetry, same-year losses first and in full, brought-forward losses only above the exemption, is the single most useful thing to understand about loss relief, and it often shapes whether it is worth crystallising a loss this year or next.

• Same-year losses are deducted from same-year gains before the annual exempt amount, in full.
• Any excess loss is carried forward to future years.
• Brought-forward losses only reduce gains above the annual exempt amount, so the exemption is used first.
• Losses on disposals to connected persons, such as family members, can only be set against gains made to that same person.

You have to report a loss to use it

A loss is only available if it has been notified to HMRC, and the time limit is four years from the end of the tax year in which the disposal happened. Report it within that window, usually through the capital gains pages of your Self Assessment return, and it is banked and can be carried forward indefinitely until used. Miss the four years and the loss is lost for good, which is why it pays to report losses even in a year when you have no gains to set them against. HMRC's guidance on claiming and carrying forward capital losses confirms the four-year claim window and the rule that carried-forward losses reduce only the gains above the exemption.

There is no requirement to use a loss the moment you have one. Once reported, it sits available until a year with gains large enough to need it, and because brought-forward losses only bite above the annual exemption, banking them costs nothing and preserves flexibility. This is one of the quieter ways to reduce a Self Assessment bill, because a loss reported today can shelter a gain that has not yet happened.

The negligible value claim for worthless assets

You do not always have to sell an asset to claim the loss. If something you still own has become of negligible value, effectively worth nothing, you can make a negligible value claim that treats it as if you had sold and immediately reacquired it at that value, crystallising the loss without an actual disposal. This is common with shares in a company that has failed or a crypto token that has collapsed and cannot be sold. The Low Incomes Tax Reform Group's guidance on negligible value claims for worthless assets sets out how the treatment works, and a claim can in some cases be backdated to an earlier date if the asset was already worthless then.

The value has to be genuinely negligible, not merely low, and HMRC maintains a list of quoted shares it accepts as of negligible value. For unquoted holdings you may need to demonstrate that the company has no realistic prospect of recovery. Where a claim is available it turns a dead investment into a usable loss, which is why it is worth reviewing a portfolio for failed holdings rather than leaving them to sit at nil.

Fitting losses into a wider plan

Because losses interact with the annual exemption and can be carried forward, they are as much a timing tool as a relief. Crystallising a loss in the same year as a large gain removes tax at your marginal CGT rate on that gain; realising it in a year with no gains simply banks it for the future. The wider CGT framework across property, shares and crypto shows how gains from different asset classes pool together on one return, and considered tax planning uses losses, the annual exemption and disposal timing together rather than treating each in isolation.

Common questions about capital losses

Do I have to report a capital loss to use it?

Yes. A loss is only available once it has been notified to HMRC, and you have four years from the end of the tax year of disposal to claim it. Report it in time and it can be carried forward indefinitely; miss the window and it is lost.

Can capital losses waste my annual exemption?

Same-year losses can, because they must come off gains before the £3,000 exemption is applied. Brought-forward losses cannot, because they only reduce gains above the exemption, so the exemption is always used first for older losses.

Can I claim a loss on an asset I still own?

Sometimes. If the asset has become of negligible value, a negligible value claim treats it as sold and reacquired at that value, crystallising the loss without a real sale. The asset must be genuinely worth almost nothing, not just reduced in value.

Can I use a loss from selling to a family member against any gain?

No. Losses on disposals to connected persons, including close family, are restricted so they can only be set against gains made to that same person, not against your gains generally.

Capital losses are one of the few parts of the tax system that reward you for a bad outcome, but only if you claim them and only if you understand the order they apply in. Reporting losses as they arise, even in years with no gains, and knowing that brought-forward losses are protected above the annual exemption, is what turns a disappointing disposal into a genuine reduction in a future tax bill.