If you make a loss when you sell or dispose of an asset, you may be able to deduct it from capital gains you have made. You may be able to deduct it from gains made in the same year or future years. You can deduct some losses from your income instead. The losses must meet certain conditions and you must claim them within a time limit.
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If you sell or dispose of an asset for less than it cost you, you’ll probably have made a loss. For help working out the gain or loss on an asset, please use the links below.
You may be able to claim that you've made a loss, if an asset that you own has become worthless or worth next to nothing. You can do this even though you still own the asset.
The asset must have lost its value during the time that you owned it. You must make a claim - called a 'negligible value claim'.
You can find out more about making a 'negligible value claim' in the helpsheet below.
You can deduct allowable losses from your gains. You must notify a loss to HM Revenue & Customs (HMRC) within the time-limits allowed for it to become an allowable loss. If your asset would have been liable to Capital Gains Tax if you had made a gain but you actually made a loss, then you should be able to deduct the loss from your gains. In rare cases you can deduct losses from your income.
To deduct a loss you must make a claim to HMRC in time. See the section on how to claim a loss below.
You need to tell HMRC about losses before you're allowed to deduct them from your gains.
You must tell HMRC in writing about any loss you make in 1996 to 1997 or a later tax year. There are time limits for doing so, see the section below for more on this.
You don't need to tell HMRC about a loss you made in 1995 to 1996 or an earlier tax year until you need to use it.
The time limit for claiming a loss is 4 years from the end of the year of assessment.
You can show losses on your Self Assessment tax return.
If you don't normally complete a Self Assessment tax return, you should claim the loss by writing to HMRC.
You must keep any records showing how you worked out your loss and send your calculations with your tax return.
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. For example, 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'.
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 2013 to 2014, 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. The annual tax-free allowance is known as the Annual Exempt Amount. Nearly everyone who lives in the UK gets this tax-free allowance - it's £10,900 for individuals for 2012 to 2013.
If your gains are below this amount, there's no Capital Gains Tax to pay.
Step 3 - If your gains are more than £10,600 but you've got some unused losses from a previous tax year, you can deduct these from your gains:
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.
In 2013 to 2014, 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 2013 to 2014, but has losses from previous years (£15,000 from 2005 to 2006) 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 2013 to 2014, leaving a gain of £18,000 (£20,000 - £2,000 losses = £18,000).
He then uses £7,100 of the £15,000 loss from 2005 to 2006 to reduce the net gain - so that it equals his Annual Exempt Amount of £10,900 (£18,000 gain - £7,100 losses = £10,900).
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 2013 to2014 losses. He will still need to complete a Self Assessment tax return if he's received a letter telling him to send a return.
The £7,900 remaining losses (£15,000 less £7,100 used = £7,900) are carried forward to use in future years.
If someone dies and has allowable losses in the tax year in which they die, special rules apply.
The person looking after the estate is usually the 'executor' or the 'personal representative'. They must first deduct the losses from the deceased's gains in the same tax year.
They then deduct any remaining losses from gains made in the previous 3 tax years, starting with the most recent year first.
See the section 'losses in the year of death' in the helpsheet below.
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'. This might be, for example, 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 Helpsheet 286.
Losses you 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 (EIS) can sometimes be used against your income. Find out more in the helpsheet below.
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. There is more about connected people in the glossary, see the link below.
Your spouse or civil partner is also a connected person for tax purposes. But if you sell or dispose of something to your spouse or civil partner the rules are different. 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 either of you owned the asset when they sell it.
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.
If you’re ‘resident’ and 'domiciled' in the UK, you deduct losses on overseas assets in the same way as losses you make on UK assets. You may be resident here if, for example, you choose to live or work in the UK and do so on a regular basis. To read more about residency and domicile follow 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:
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 HMRC.