Utilising Capital Gains Tax losses

Usually, if you sell an asset for less than you paid for it you would make a capital loss. As a general rule, if the asset would have been liable to CGT had a gain taken place, then the loss should be an allowable deduction. 

The exact treatment of losses depends on whether they are:

  • losses of the same year of assessment as the gains;
  • losses of earlier years of assessment;
  • losses of the tax year of death; or
  • particular losses which may, exceptionally, be carried back from a later year of assessment.

These deduction of an allowable loss from chargeable gains does not require a claim and does not extend the time limit for enquiring into the original loss claim. Gains accruing in a tax year may be chargeable to CGT at different rates. Therefore, the tax effect of losses and the annual exempt amount set off against those gains can vary.

In most circumstances, allowable losses and the annual exempt amount can be deducted in the way that is most beneficial to the individual. This will usually be against gains that are charged at the highest rate. A claim for losses does not have to be made straight away and can be made up to 4 years after the end of the tax year that the relevant asset was disposed.

Where there remain unused losses that cannot be set against gains of the same year, these losses are carried forward to be set against future gains. It is only possible to utilise losses brought forward if net gains exceed the annual CGT exempt amount for the year.

Source:HM Revenue & Customs| 18-09-2023

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