Yes – using capital losses to reduce my CGT bill is one of the most effective and legitimate ways to lower what I owe HMRC, and in some cases it can wipe the bill out completely. If you have made an allowable capital loss, HMRC lets you set it against gains from other assets, but the rules on timing, order and which losses actually qualify are stricter than most people expect. Get them wrong and you could waste your annual exempt amount or lose the ability to use a loss altogether.
This guide explains exactly how using capital losses to reduce your CGT bill works, which losses HMRC will accept, and the deadlines you need to know.
How Capital Losses Reduce Your CGT Bill
When you dispose of an asset for less than you paid for it (after allowable costs), you make an “allowable loss”. This loss can be set against chargeable gains you make on other assets, reducing the total gain that Capital Gains Tax is charged on. If your losses are large enough, they can bring your taxable gain down to nil, meaning no CGT is due for that year at all.
The Order Matters: Same-Year Losses Must Be Used First
HMRC’s rules are strict about sequencing. Any capital losses made in the same tax year as your gains must be deducted first, before you apply your annual exempt amount. This is compulsory – you cannot choose to save the loss for later if you made it in the same year as a gain, even if it means part of your tax-free allowance goes unused. Only after same-year losses have been deducted do you apply your annual exempt amount to whatever gain remains. Our guide to the CGT allowance for 2026/27 explains how much you can currently offset tax-free once losses have been applied.
Carrying Forward Unused Losses to Future Tax Years
If your allowable losses exceed your gains in a tax year, the excess is not wasted. It is carried forward indefinitely and can be used against gains in future years, provided the loss was reported to HMRC. Unlike same-year losses, brought-forward losses do not have to be used in full – you can make a partial claim, using only enough of the brought-forward loss to reduce your gain down to the level of your annual exempt amount, rather than below it. This avoids wasting your tax-free allowance and preserves the remaining loss for future years.
What Counts as an Allowable Loss?
Most losses on assets that would otherwise be subject to Capital Gains Tax qualify as allowable losses, including losses on shares, second properties, and business assets. Losses on assets that are exempt from CGT in the first place – such as your main home under Private Residence Relief, or most personal possessions worth under the exemption threshold – generally cannot be claimed, because a gain on the same asset would not have been taxable either.
Losses You Cannot Use to Reduce Your CGT Bill
Not every loss qualifies. Before relying on capital losses to reduce my CGT bill, it helps to know which ones HMRC will refuse:
- Losses to connected persons. A loss made on a disposal to a spouse, close relative, or a company you control can usually only be set against gains you make from that same connected person in future – not against your general gains. These are sometimes called “clogged losses”.
- Losses against income tax. Capital losses cannot generally reduce your income tax bill. They can only be set against capital gains, with narrow exceptions such as certain qualifying losses on EIS shares.
- Losses you have not formally claimed. A loss does not reduce your CGT bill automatically – it must be reported to HMRC, usually via your Self Assessment return or a letter, before it can be carried forward or offset.
How to Claim a Capital Loss
You report allowable losses in the same way you report gains – through the Capital Gains Tax section of your Self Assessment return, or by writing to HMRC directly if you do not otherwise need to file a return. You have up to four years from the end of the tax year in which the loss arose to make the claim, so historic losses are not necessarily lost if you have not yet used them. For property disposals, this is separate from the 60-day reporting window; see our guide on what happens if you miss the 60-day CGT deadline for how the two processes interact.
Worked Example: Capital Losses to Reduce My CGT Bill
Suppose in the same tax year you sell shares at a gain of £15,000 and separately sell another shareholding at a loss of £6,000.
- Step 1: Deduct the same-year loss from the gain: £15,000 – £6,000 = £9,000.
- Step 2: Deduct your annual exempt amount from the remaining gain.
- Step 3: Apply your applicable rate, based on your income tax band, to what is left. Our Capital Gains Tax rates guide for 2026/27 sets out current thresholds.
If your loss had instead been £20,000, the excess £5,000 (after fully cancelling the £15,000 gain) would carry forward to future tax years rather than being wasted. This is exactly how using capital losses to reduce my CGT bill works in practice – the losses do the heavy lifting before any allowance or rate is applied.
Using a Spouse’s Losses to Reduce CGT
Losses cannot simply be transferred between spouses or civil partners, but assets can be transferred between them at no gain, no loss before a sale. This means it is often possible to arrange for whichever spouse holds unused losses or a lower tax band to make the eventual disposal, legitimately reducing the household’s combined CGT bill. We explain the mechanics of this in our guide to whether married couples can transfer their CGT allowance. Jointly owned assets add a further layer of complexity, which we cover in our guide to Capital Gains Tax on jointly owned property.
Common Mistakes When Using Capital Losses to Reduce CGT
- Forgetting that same-year losses must be used even if it wastes part of the annual exempt amount.
- Failing to formally claim a loss within the four-year time limit, meaning it can no longer be carried forward.
- Trying to set a loss on a disposal to a spouse or connected company against unrelated gains.
- Assuming losses can reduce income tax, rather than only future or current capital gains.
- Not exploring wider planning first, such as the strategies in our guide to legal ways to reduce Capital Gains Tax on property.
Frequently Asked Questions
Can you offset capital losses against capital gains tax in the UK?
Yes. Using capital losses to reduce my CGT bill works by deducting allowable losses from chargeable gains before the annual exempt amount and tax rate are applied.
Do capital losses reduce capital gains tax automatically?
No. A loss must be reported to HMRC, usually on your Self Assessment return, before it can be used – it is not applied automatically just because a loss occurred.
Can capital losses be carried back to previous tax years?
Generally no, except in the tax year of death, when losses can be carried back up to three years. In all other circumstances, unused losses are carried forward, not back.
Is there a time limit for claiming a capital loss?
Yes. You must claim an allowable loss within four years of the end of the tax year in which it arose, or you lose the right to use it.
Get Help Using Capital Losses to Reduce Your CGT Bill
Now that you know how using capital losses to reduce my CGT bill works in principle, applying it correctly is the harder part. Small errors – claiming a connected-person loss, missing the four-year deadline, or over-claiming a brought-forward loss – can be costly. If you would like a qualified accountant to review your gains and losses and calculate exactly what you owe, get in touch with our team for tailored advice. For a broader look at how gains are calculated before losses are applied, see our pillar guide on how Capital Gains Tax is calculated in the UK.
Sources: GOV.UK – Capital Gains Tax: losses, GOV.UK – Capital Gains Tax: what you pay it on, rates and allowances, GOV.UK – Capital Gains Tax allowances, GOV.UK – Capital Gains Tax on gifts, and GOV.UK – Report and pay your Capital Gains Tax.
