A capital loss only becomes an allowable loss once you give HMRC notice of its amount, and you have four years from the end of the tax year of the disposal to do that. Losses of the year are set against that year’s gains in full, and unused losses carry forward without time limit but are only used to bring later gains down to the annual exempt amount. A loss on a disposal to a connected person can only be set against gains on disposals to that same person.

What makes a capital loss allowable?

Section 16 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) says a loss is computed in the same way as a gain, and that the rules which make a gain chargeable or exempt apply equally to losses. So a loss is allowable only if a gain on the same disposal would have been chargeable. A loss inside an ISA, or on a wasting chattel that never qualified for capital allowances, is not allowable, and losses on chattels sold for £6,000 or less are restricted, as explained in chattels and wasting assets.

Other restrictions sit elsewhere in the Act. HMRC’s manual at CG15800 lists the main ones: losses on disposals to connected persons (section 18(3)), the reduction for capital allowances (section 41) and the targeted anti avoidance rule in section 16A, which denies losses arising from arrangements with a main purpose of obtaining a tax advantage.

How do you register a capital loss with HMRC?

Section 16(2A) says a loss is not allowable unless the person gives HMRC notice quantifying the amount, and that sections 42 and 43 of the Taxes Management Act 1970 apply to the notice as if it were a claim for relief. There is no special form. HMRC accepts that including the loss and the supporting computation in a tax return is the notice; in practice this means the capital gains summary pages (SA108).

If you have never made a gain and are not registered for Self Assessment, GOV.UK says you can write to HMRC instead. Report the loss even in a year with no gains. A loss that has not been notified cannot be used later, however clear the figures are.

What is the deadline for claiming a loss?

You can claim up to 4 years after the end of the tax year in which you disposed of the asset. Illustration only. Shares sold at a loss on 10 May 2026 fall in the 2026 to 2027 tax year, which ends on 5 April 2027, so the loss must be notified by 5 April 2031.

The deadline runs from the disposal, not from the year you want to use the loss. GOV.UK notes one exception: losses made before 5 April 1996 can still be claimed, but they are deducted after any more recent losses. Once notified, the deduction of a loss against later gains does not need a fresh claim (CG15800).

In what order are losses set against gains?

  1. Losses of the same tax year are deducted from that year’s gains in full, even if that wastes some of the annual exempt amount.
  2. If gains remain above the annual exempt amount, losses brought forward from earlier years are deducted, but only enough to bring the gains down to that amount.
  3. Anything unused carries forward to later years.

The annual exempt amount is £3,000 for 2026 to 2027; see the annual exempt amount.

Illustration only. In 2026 to 2027 Priya has gains of £10,000, a loss of £2,000 in the same year and £20,000 of losses brought forward.

Step Amount
Gains of the year £10,000
Less loss of the same year (£2,000)
Net gains £8,000
Less brought forward losses used (£5,000)
Covered by the annual exempt amount £3,000
Losses carried forward (£20,000 less £5,000) £15,000

Can capital losses be carried back?

Usually not. CG15800 lists a few exceptions. The one most people meet is death: under section 62(2), losses in the tax year of death that cannot be used against that year’s gains can be set against gains of the 3 preceding tax years, latest year first. Personal representatives should check this before finalising the last returns.

Two related reliefs work differently. A negligible value claim lets you crystallise a loss on an asset you still own that has become worthless. A loss on certain unquoted trading company shares can sometimes be set against income instead; see share loss relief against income.

How do losses on disposals to connected persons work?

Section 18(3) says a loss on a disposal to a connected person can only be deducted from a gain on some other disposal to that same person, made while they are still connected. HMRC calls this a clogged loss (CG14561). GOV.UK lists connected people as including brothers, sisters, parents, grandparents, children and grandchildren and their spouses or civil partners, the same relatives of your spouse or civil partner, business partners, a company you control, and trustees of a settlement where you or someone connected to you is the settlor. See connected persons for tax.

Illustration only. Tom gives his daughter shares worth £6,000 that cost him £10,000. The transfer is at market value, giving a loss of £4,000. Tom cannot set it against a gain on shares he sells on the stock market. It stays available only against a future gain on something he transfers to his daughter.

Transfers to a spouse or civil partner living with you are at no gain no loss, so they produce neither a gain nor a loss to claim. Unmarried partners are not connected by the relationship alone, so a loss on a transfer to a partner is not clogged; see capital gains for unmarried couples.

Can you create a loss by selling and buying back?

Not easily. For shares, a repurchase of the same class within 30 days is matched with the sale under section 106A, which largely cancels the loss; see bed and breakfasting, bed and ISA and bed and spouse. For any type of asset, HMRC’s manual at CG13350 points to section 16A where a sale and buyback is used to trigger a loss.

What mistakes come up most often?

  • Not reporting a loss in a year with no gains, then finding it out of time 4 years later.
  • Setting a brought forward loss against gains below the annual exempt amount, which wastes it.
  • Using a clogged loss from a family transfer against unrelated gains.
  • Claiming a loss on an exempt asset, such as a private car or an ISA holding.
  • Forgetting the carry back for losses in the year of death.

If a loss was left off a return, it may still be notified within the 4 year limit; see amending a tax return.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.