- Working out your capital gain or loss - the basics
- How to report a capital gain
- What to do if you’ve made a loss
- Record keeping and Capital Gains Tax
What to do if you’ve made a loss
If you make a loss when you sell or dispose of an asset, you may be able to deduct it from capital gains made in the same year or future years. Some losses can be deducted from your income instead. The losses must meet certain conditions and you must claim them within a time limit.
On this page:
- How to work out if you've made a loss
- Is the loss 'allowable' for Capital Gains Tax purposes?
- How to claim a loss - and the time limits for doing so
- Deducting losses from your capital gains
- Deducting losses from your income
- Losses on disposals to family members and other 'connected people
- Using losses with Entrepreneurs' Relief
- Losses on overseas assets
- More useful links
How to work out if you've made a loss
Losses when you sell or dispose of an asset
In simplest terms, if you sell or dispose of an asset for less than it cost you, you’ll probably have a loss. For help working out the gain or loss on an asset, please use the links below.
How to calculate capital gains or losses on shares
How to calculate capital gains or losses on property
How to calculate capital gains or losses on personal possessions
How to calculate capital gains or losses on business assets
Assets that are worthless - 'negligible value claims'
If an asset you own has lost most or all of its value and has become worthless or worth next to nothing, you may be able to claim that you've made a loss, even though you still own the asset.
The asset must have lost its value during the time that you owned it and you must make a claim - called a 'negligible value claim'.
You can find out more about making a 'negligible value claim' in the help sheet below.
Download the latest help sheet for more on Negligible Value Claims (Help Sheet 286) (PDF 75K)
Is the loss 'allowable' for Capital Gains Tax purposes?
If your asset would have been liable to Capital Gains Tax if you'd made a profit when you sold or disposed of it, you should be able to deduct the loss from your gains - and in rare cases from your income - as long as you make a claim to HM Revenue & Customs (HMRC) in time (see the section on how to claim a loss below).
Check to see if your asset is liable to Capital Gains Tax
How to claim a loss - and the time limits for doing so
You need to tell HMRC about losses before you're allowed to deduct them from your gains.
If you made the loss in 1996-97 or a later tax year, you need to tell HMRC in writing. You have five years to do this (see more on 'time limits' below).
If you made a loss in 1995-96 or an earlier tax year - and haven't yet used it - you don't need to tell HMRC about the loss until you want to use it.
Time limits for claiming losses - 1996-97 and later tax years
The time limit for claiming a loss is five years from the 31 January after the end of the tax year in which you made the loss.
Example
- you make a loss in 2008-09, so the end of the tax year is 5 April 2009
- the 31 January after the end of that tax year is 31 January 2010
- you must make the claim by 31 January 2015
How to claim a loss
If you normally complete a Self Assessment tax return, there are places to show losses on the Capital Gains Tax summary pages.
If you don't normally complete a Self Assessment tax return, you should claim the loss by writing to your Tax Office.
You must keep any records showing how you worked out your loss and include your calculations with your tax return or correspondence.
Deducting losses from your capital gains
As long as the loss is 'allowable' (see above), you can deduct it from
any gains made that year - or in a later tax year. It may reduce the amount
of Capital Gains Tax you pay.
It doesn’t matter what type of asset you made the loss on, you can
usually deduct it from gains on any type of asset (eg you can use a loss
on shares to offset against a gain on a second home).
There are restrictions if you've made the loss on a sale or disposal to someone you're connected with (see the section below on losses to family members and ‘connected people').
Using a loss - a step-by-step guide for 2008-09
Step 1 - You must first deduct any allowable losses from gains you’ve made in the same tax year. For example, if you've made both gains and losses in 2008-09, you must deduct those losses from those gains.
Step 2 - If you still have gains after deducting your allowable losses, you should check whether the gains are more than the annual tax-free allowance - known as the Annual Exempt Amount. Nearly everyone who lives in the UK gets this tax-free allowance - it's £9,600 for individuals for 2008-09.
If your gains are below this amount, there's no Capital Gains Tax to pay.
Step 3 - If your gains are more than £9,600 but you've got some unused losses from a previous tax year, you can deduct these from your gains.
- Use just enough of the losses to reduce your gain to the Annual Exempt Amount.
- Use allowable losses from 1996-97 and later tax years before using losses from 1995-96 and earlier tax years.
Step 4 - If you still have unused losses from a previous tax year after you've reduced your gains to the Annual Exempt Amount, you can carry them forward to future tax years.
Example
In 2008-09, Mr B sells all of his shares in ABC Ltd and makes a loss of £2,000.
In the same year, he sells his holiday home in Cornwall and makes a gain of £20,000.
He's made no other gains or losses in 2008-09, but has losses from previous years (£15,000 from 2001-02) that he claimed within the time limits.
To work out his Capital Gains Tax, he first deducts his £2,000 losses from his gain of £20,000 for 2008-09, leaving a gain of £18,000 (£20,000 - £2,000 losses = £18,000).
He then uses £8,400 of the £15,000 loss from 2001-02 to reduce the net gain - so that it equals his Annual Exempt Amount of £9,600 (£18,000 gain - £8,400 losses = £9,600).
He has no Capital Gains Tax to pay as his gains after losses did not exceed the Annual Exempt Amount. He'll still need to tell HMRC about his 2008-09 losses and will still need to complete a Self Assessment tax return if he's been sent one.
The £6,600 remaining losses (£15,000 less £8,400 used = £6,600) are carried forward to use in future years.
Using a loss - when someone dies
If someone dies and has allowable losses in the tax year in which they die, special rules apply.
The person looking after the estate - usually the 'executor' or the 'personal representative' - first deducts the losses from the deceased's gains in the same tax year.
They then deduct any remaining losses from gains made in the previous three tax years, starting with the most recent year first.
See the section 'losses in the year of death' in the help sheet below.
Download the latest help sheet on death and Capital Gains Tax - Help Sheet 282 (PDF 82K)
Deducting losses from your income
When you make a loss by selling or disposing of an asset, you can only set it against your income in very specific circumstances.
To qualify, the loss must arise on shares in an ‘unquoted trading company’ (eg a family run business that's not listed on a recognised stock exchange, such as the London Stock Exchange). The loss must also meet certain additional criteria.
You can find out more about unquoted shares, trading companies, and the criteria to claim a loss against your income in the section 'claim to set loss against income' in the help sheet below.
Download the latest help sheet on Income Tax losses on shares - Help Sheet 286 (PDF 75K)
Losses on shares in building societies
Losses made on shares in building societies - such as Northern Rock - can’t be used against your income. But you may still be able to deduct these losses from your capital gains.
Losses on shares in the Enterprise Investment Scheme
Losses on shares in the Enterprise Investment Scheme (EIS) can sometimes be used against your income. Find out more in the help sheet below.
Losses on disposals to family members and other ‘connected people’
If you make a loss on a sale, gift or other disposal to someone you're connected with - there's a special rule. You can only deduct the loss from gains you make on gifts, sales or other disposals to the same person.
For tax purposes, a ‘connected person’ is someone such as your brother, sister, child, parent, grandparent, mother-in-law or business partner (see the glossary link below.)
The exception is if you sell or dispose of something to your spouse or civil partner (also a connected person). As long as you were living together in that tax year, any loss you make is ignored. Your spouse or civil partner may be able to claim any loss made over the total period of ownership of the asset (theirs and yours) when they sell the asset.
Read more about ‘connected people’ in the Capital Gains Tax glossary
Using losses with Entrepreneurs' Relief
If you claim Entrepreneurs' Relief and have deducted losses in your Entrepreneurs' Relief calculation, this will affect the losses you have left to deduct from your other capital gains.
Find out more about Entrepreneurs' Relief and losses - download Help Sheet 275 (PDF 99K)
Losses on overseas assets
If you’re ‘resident’ or ‘ordinarily resident’ and 'domiciled' in the UK, you deduct losses on overseas assets in the same way as losses you make on UK assets (see above). You may be 'resident' here if, for example, you choose to live or work in the UK and do so on a regular basis (see more about 'residency' and 'domicile' in the link below).
However, if you’re 'non-domiciled' in the UK and have claimed what's called the 'remittance basis', there are special rules for using losses you make on overseas assets. (See more on this in the link below - in particular the section on 'overseas losses election' on page 34.)
You may be non-domiciled in the UK if, for example:
- you or your father weren't born in the UK
- you've lived abroad for most of your life
- you plan to live abroad permanently
Residency, domicile and tax on foreign gains and losses are complicated subjects - a lot depends on the facts of each case. See more in the guidance below or contact your Tax Office.
Find out more about how ‘residency’ and ‘domicile’ affect your taxes
