Taxation (UK) · Gains and losses on the disposal of movable and immovable property

Capital Losses and How to Use Them in TX-UK

Updated 11 October 2026 · Fact-checked

A capital loss arises when an asset is disposed of for less than its cost. Set current year losses against current year gains in full, even if this wastes the annual exempt amount. Then use brought forward losses only to reduce gains down to the annual exempt amount (£3,000). Unused losses carry forward.

Understand Capital Losses and Their Use

A capital loss is the mirror image of a chargeable gain. It arises when you dispose of a chargeable asset and the proceeds are less than the allowable cost. Losses on exempt assets, such as a private car, are not allowable. Losses are computed in the same way as gains, using the same rules for costs and proceeds.

There are three kinds of loss you must tell apart. Current year losses arise in the same tax year as the gain. Brought forward losses arise in an earlier tax year and have been carried forward. Negligible value losses arise when you claim that an asset has become worthless, so you are treated as having sold it and immediately reacquired it for its (negligible) value.

The order matters because the annual exempt amount (£3,000) cannot be carried forward. Current year losses must be set against current year gains first. They are set off in full, even if this reduces the net gains below the annual exempt amount. That can waste the exemption, but you have no choice.

Brought forward losses are different. You use only as much as you need to reduce net gains to the annual exempt amount. Any remaining brought forward loss carries forward to future years. This protects the exemption.

If current year losses exceed current year gains, the net loss is carried forward. No annual exempt amount is used and it is not wasted. Capital losses cannot be set against income in the normal case. They can only be set against gains.

Key rules to remember

Annual exempt amount: Annual exempt amount = £3,000; Individuals only. Cannot be carried forward or back. Deducted after all losses.
Order of set-off: Gains − current year losses − brought forward losses (only down to £3,000) − annual exempt amount = taxable gains; Current year losses are used in full. Brought forward losses are used only as needed.
Brought forward loss used: B/f loss used = net gains after current year losses − £3,000 (limited to the loss available); If net gains are £3,000 or less, no brought forward loss is used.
Net current year loss: If current year losses > current year gains, excess loss is carried forward; Carried forward indefinitely against future gains, only after current year losses of that year.
Negligible value claim: Loss = allowable cost − negligible value (treated as disposal and reacquisition at that value); Claim can be treated as made in an earlier tax year if conditions are met, otherwise the claim date applies.
CGT rates (individuals): 18% to basic rate band; 24% above; Rates as provided by ACCA. Business asset disposal relief and investors' relief are charged at 14% on qualifying gains.

How to solve Capital Losses and Their Use questions

Follow this order for any question with losses. The sequence protects the annual exempt amount where the law allows.

1Compute each gain and each loss separately for the tax year. Ignore exempt assets.
2Add up the current year gains and the current year losses. Include any negligible value claim treated as made in the year.
3Deduct current year losses from current year gains in full. If losses exceed gains, there is no tax. Carry the net loss forward.
4If a gain remains, compare it with the annual exempt amount of £3,000.
5Deduct brought forward losses only to the extent needed to reduce the gain to £3,000. Do not use more.
6Deduct the annual exempt amount. The result is the taxable gain.
7Apply 18% or 24% according to the unused basic rate band after taxable income. Remember 14% where business asset disposal relief applies.
8State the loss left to carry forward.

Quickest way: Three-line loss set-off

When to use it: Use this in Section A and B objective questions where you need a taxable gain or a carried forward loss quickly.

Line 1: total gains − current year losses = net gain (or net loss to carry forward).
Line 2: net gain − £3,000 = maximum brought forward loss you can use. If this is zero or negative, use none.
Line 3: use the lower of that figure and the brought forward loss. Taxable gain = net gain − loss used − £3,000, which is nil or more.
Carried forward loss = old b/f loss − loss used (plus any new net current year loss).

Common mistakes in Capital Losses and Their Use

Using brought forward losses before current year losses
Students treat all losses as one pool.
Fix: Always set current year losses first. Only then look at brought forward losses.
Using all brought forward losses to reduce the gain to nil
Students forget that the annual exempt amount would be wasted.
Fix: Stop using brought forward losses when net gains reach £3,000. Keep the rest for later years.
Restricting current year losses to protect the annual exempt amount
Students apply the brought forward rule to every loss.
Fix: Current year losses are mandatory and set off in full. The annual exempt amount may be wasted.
Deducting the annual exempt amount before losses
Students follow the order of a standard computation.
Fix: Losses come first. The annual exempt amount is the last deduction.
Setting a capital loss against income
Confusion with trading loss relief.
Fix: Capital losses go against gains only in the normal case. Do not offset them against salary or profits.
Allowing a loss on an exempt asset or ignoring a negligible value claim
Students do not check the asset type or read the scenario closely.
Fix: Check whether the asset is chargeable. If an asset has become worthless and a claim is made, treat it as sold and reacquired at its negligible value.

Worked examples

Example 1

In 2025–26 Priya sold shares for a gain of £14,000 and a painting for a loss of £4,500. She has capital losses brought forward of £6,000. Calculate her taxable gain and the loss carried forward.

Show the solution

Current year gain £14,000 less current year loss £4,500 = net gain £9,500.
Maximum brought forward loss to use = £9,500 − £3,000 = £6,500.
Brought forward loss available is £6,000, which is below £6,500, so use all £6,000.
Net gain after losses = £9,500 − £6,000 = £3,500.
Deduct annual exempt amount £3,000. Taxable gain = £500.
No loss remains to carry forward.

Answer: Taxable gain £500. Loss carried forward nil.

Example 2

In 2025–26 Tom has gains of £5,000 and current year losses of £2,000. He has losses brought forward of £4,000. Calculate his taxable gain and the loss carried forward.

Show the solution

Net gain = £5,000 − £2,000 = £3,000.
This equals the annual exempt amount of £3,000, so no brought forward loss is needed.
Deduct the annual exempt amount of £3,000. Taxable gain = nil.
The whole £4,000 brought forward loss is carried forward.

Answer: Taxable gain nil. Loss carried forward £4,000.

Exam tips

Write the order of set-off at the top of your answer: current year, then brought forward, then annual exempt amount. It earns method marks in Section C.
In objective test questions, check first whether the net gain after current year losses exceeds £3,000. If it does not, no brought forward loss is used. This answers many questions quickly.
Look for negligible value wording such as 'the company is insolvent and the shares are worthless'. That signals a claim and a loss.
Always state the loss carried forward. Markers often award a mark for it.
Check the asset first. A loss on an exempt asset is not allowable and must not appear in your computation.

Practice questions from Gains and losses on the disposal of movable and immovable property

Capital Losses and Their Use in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Capital Losses and Their Use: frequently asked questions

Do I have to use current year capital losses in full?

Yes. Current year losses are set against current year gains in full. This applies even if it reduces your net gains below the £3,000 annual exempt amount and wastes part of it.

How much brought forward loss can I use?

Use only enough to reduce your net gains for the year to the annual exempt amount of £3,000. Any balance of the loss is carried forward to later years.

What is a negligible value claim?

It is a claim that an asset, such as shares in a failed company, has become of negligible value. You are treated as having sold and immediately reacquired it at that value. The difference from your cost is the capital loss.

Can capital losses be set against income?

Not in the normal case. Capital losses are set against chargeable gains only. For TX-UK, treat income and gains as separate pools unless the question says otherwise.