Capital Gains Tax Losses: How to Use Losses to Reduce Your CGT Liability in 2026/27

Capital Gains Tax losses can provide valuable tax planning opportunities for individuals who have sold assets at a loss. While making a loss on an investment or property disposal may not seem beneficial, allowable losses can often be used to reduce taxable gains and lower future Capital Gains Tax liabilities. When an asset is sold for less than its original cost, the resulting loss may be available to offset gains made on other assets. Understanding how capital losses work, when they can be claimed and how to carry forward capital losses can help taxpayers manage their CGT position more effectively. For the 2026/27 tax year, individuals have a Capital Gains Tax Annual Exempt Amount of £3,000. Where taxable gains exceed this allowance, available losses may help reduce the amount on which CGT is charged. The final rate charged also depends on your wider Income Tax position, explained fully in our ultimate guide to personal tax in the UK. This guide explains how to use capital losses against gains, how losses are reported to HMRC and how effective planning can help reduce unnecessary Capital Gains Tax exposure.

What Are Capital Gains Tax Losses?

A Capital Gains Tax loss occurs when an individual disposes of an asset for less than the amount originally paid for it. The basic calculation is: Purchase cost and allowable expenses minus disposal proceeds = capital loss For a loss to qualify as an allowable capital loss, the asset must generally be one that would have created a chargeable gain if it had increased in value. Examples of assets that may create allowable losses include:

• Shares and investment holdings.
• Investment property.
• Business assets.
• Land.
• Other chargeable assets.

Losses from exempt assets cannot normally be used to reduce taxable capital gains.

How Capital Losses Reduce Taxable Gains

Allowable losses can reduce the amount of capital gains subject to tax. The general order for calculating taxable gains is:

• Calculate the gain or loss on each asset disposed of during the tax year.
• Add together all gains and losses.
• Deduct allowable losses.
• Apply any available capital losses brought forward from previous years.
• Apply the Annual Exempt Amount if available.
• Calculate CGT on the remaining taxable gain.

Using losses correctly can significantly reduce a taxpayer’s CGT liability, particularly where large gains arise from property or investment disposals.

Using Capital Losses Against Gains in the Same Tax Year

Current-year losses are normally deducted from gains made during the same tax year before calculating the final taxable gain. For example, if an individual sells shares and makes a £20,000 gain but also disposes of another investment creating a £8,000 allowable loss, the loss can generally reduce the taxable gain to £12,000. This means CGT is calculated on the reduced gain rather than the original £20,000 gain. Allowable losses are generally applied automatically against gains in the same tax year, provided they are correctly reported.

Carry Forward Capital Losses to Future Years

Where capital losses cannot be fully used in the year they arise, they may be carried forward and used against future capital gains. Understanding how to carry forward capital losses is particularly important for investors who experience losses in one year but expect future gains from property, shares or business assets. However, carried-forward losses are only used when required. They cannot normally be used to create or increase a loss for tax purposes. For example, if an individual has:

• £30,000 of carried-forward losses.
• £15,000 taxable gains after current-year calculations.

Only enough losses are used to reduce the taxable gain as required under the rules.

How to Report Capital Losses to HMRC

Although a loss does not usually create an immediate tax repayment, reporting it correctly is important because it may become valuable against future gains. Capital losses can generally be reported through:

• A Self Assessment tax return where applicable.
• A claim made directly to HMRC.

Taxpayers should keep evidence supporting the loss calculation, including:

• Purchase documents.
• Sale records.
• Broker statements.
• Professional valuation documents where relevant.

Without evidence, HMRC may challenge whether a claimed loss is allowable.

Which Assets Can Create Allowable Capital Losses?

Not every loss qualifies for Capital Gains Tax purposes. The asset must generally fall within the CGT rules. Potential sources of allowable losses include:

• Shares that have fallen in value.
• Investment properties sold below their purchase cost.
• Business assets disposed of at a loss.
• Land investments.

Losses from personal expenditure or assets that are exempt from CGT cannot normally be used to reduce taxable gains. This mirrors the wider set of circumstances where you don’t have to pay Capital Gains Tax at all, since exempt assets sit outside the CGT system on both the gain and loss side.

How Capital Losses Work With the Annual Exempt Amount

The Annual Exempt Amount reduces the amount of gain subject to CGT after allowable losses have been considered. Our full reference guide to current rates and allowances covers this alongside the CGT rates that apply once losses and exemptions have been deducted. For 2026/27, individuals have a £3,000 Annual Exempt Amount. For example:

• Total gains: £25,000.
• Allowable losses: £10,000.
• Remaining gain: £15,000.
• Annual Exempt Amount: £3,000.
• Taxable gain: £12,000.

Understanding this order helps taxpayers avoid incorrectly applying allowances before considering available losses.

Example: Using Capital Gains Tax Losses

Emma sells two investments during the 2026/27 tax year. The first investment creates a gain of £50,000, while the second investment is sold for a loss of £20,000. The calculation is:

• Capital gain: £50,000.
• Less allowable capital loss: £20,000.
• Remaining gain: £30,000.
• Less Annual Exempt Amount: £3,000.
• Taxable gain: £27,000.

By correctly using her Capital Gains Tax losses, Emma reduces the amount subject to CGT.

Capital Gains Tax Relief and Loss Planning

Effective loss planning forms part of broader Capital Gains Tax relief strategies. Taxpayers may consider:

• Reviewing investments before selling assets.
• Using losses before they expire or become difficult to claim.
• Considering the timing of disposals.
• Keeping accurate records of historic losses.

Loss planning should always reflect genuine investment decisions rather than transactions undertaken only for tax purposes. It’s also worth checking the current CGT rates before finalising any calculation, since these have changed significantly in recent years.

Common Mistakes When Claiming Capital Losses

Common errors include:

• Failing to report losses to HMRC.
• Assuming all investment losses qualify.
• Losing records supporting the original purchase cost.
• Using losses against income instead of capital gains.
• Forgetting about losses from previous tax years.

Correct reporting ensures losses remain available when they are needed.

Key Takeaways

Capital Gains Tax losses can be an important tool for managing CGT liabilities. Although selling an asset at a loss is not normally the intended outcome, allowable losses can reduce taxable gains and help taxpayers pay the correct amount of tax. Understanding how to use capital losses against gains, how to carry forward capital losses and how available Capital Gains Tax relief works allows individuals to plan more effectively. Maintaining accurate records and reviewing your CGT position before disposing of assets can help ensure that valuable losses are not missed.

Case Study: Turning Investment Losses into Future Tax Planning Opportunities

Michael visited our Fulham Broadway office after selling several investments and discovering that some disposals had resulted in losses. He wanted to understand whether these Capital Gains Tax losses could be used to reduce future tax liabilities and how he should report them correctly to HMRC.

During the consultation, we reviewed Michael’s investment transactions, purchase records and disposal statements to determine which losses qualified as allowable capital losses. We explained how to use capital losses against gains, including the order in which current-year losses, carried-forward losses and the Annual Exempt Amount are applied when calculating CGT. We also reviewed his previous tax records to identify whether any historic losses could be carried forward and discussed the importance of maintaining supporting evidence, including broker statements and transaction records, to protect his position if HMRC requested further information.

Following the review, Michael gained a clearer understanding of how Capital Gains Tax losses could reduce taxable gains, how to carry forward capital losses effectively and how accurate reporting could help him manage future investment disposals while remaining fully compliant with HMRC requirements.