Taxation (UK) · The basic principles of computing gains and losses

Capital Losses and Relief for CGT in ACCA TX-UK

Updated 11 October 2026 · Fact-checked

A capital loss is set first against gains of the same tax year, in full, even if that wastes the annual exempt amount. Any loss left is carried forward and set against later gains only to the extent needed to reduce them to the annual exempt amount (£3,000).

Understand Capital Losses and Relief

A capital loss arises when you dispose of a chargeable asset and the allowable costs exceed the proceeds. It is only useful if you have chargeable gains to set it against. You cannot set a capital loss against income, so it never reduces income tax.

There are two kinds of loss for the exam: current year losses (made in the same tax year as the gain) and brought forward losses (made in earlier tax years and not yet used). They are treated differently, and this difference is the main point of the topic.

Current year losses must be set against current year gains. You have no choice. The set-off happens before the annual exempt amount is deducted. So if gains are £10,000 and the current year loss is £8,000, net gains are £2,000. The annual exempt amount of £3,000 is then partly wasted.

Brought forward losses are more flexible. They are used only after current year losses, and only as much as is needed to bring net gains down to the annual exempt amount. The rest stays carried forward, with no time limit, to use in later years. This protects the annual exempt amount.

If current year losses exceed current year gains, the net result is a loss. The annual exempt amount is not used and cannot be carried forward. The net loss is carried forward to future years. A loss must be claimed from HMRC within four years of the end of the tax year of the disposal; this time limit is a rule you should know, but your exam question will usually tell you the loss has already been established.

Key rules to remember

Order of set-off: Gains − current year losses − brought forward losses (only as needed) − annual exempt amount = taxable gains; Current year losses come first and are set off in full. Brought forward losses are used only down to the annual exempt amount.
Annual exempt amount: £3,000 for individuals; Given in the ACCA rates and allowances. Unused annual exempt amount cannot be carried forward.
Brought forward loss used: 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.
CGT rates for individuals: 18% (lower rate) and 24% (higher rate); The rate depends on how much of the basic rate band is left after taxable income. Business asset disposal relief gains are taxed at 14%.
Current year net loss: If current year losses > current year gains, the excess is carried forward in full; The annual exempt amount is wasted in that year.

How to solve Capital Losses and Relief questions

Use this order for every individual CGT question that has losses.

1Compute each gain or loss separately for the tax year, after allowable costs and any reliefs.
2Add up all gains. Add up all current year losses.
3Deduct current year losses from current year gains in full. Do this even if the annual exempt amount will be wasted.
4If the result is a net loss, carry it forward. No tax is due and the annual exempt amount is lost. Stop.
5If net gains remain, deduct brought forward losses only to reduce the gains to £3,000, or until the losses run out.
6Deduct the annual exempt amount (£3,000) to find taxable gains.
7Work out the CGT at 18% or 24% according to the unused basic rate band, and at 14% for any gain qualifying for business asset disposal relief.
8State any loss left to carry forward.

Quickest way: Three-line loss shortcut

When to use it: Use for objective test questions asking for taxable gains or the loss carried forward.

Net gains = gains − current year losses. If this is zero or less, the answer is nil taxable gain and the loss is carried forward.
Brought forward loss used = net gains − £3,000. Cap it at the loss available. If negative, use nil.
Taxable gain = net gains − brought forward loss used − £3,000, but never below nil. Loss carried forward = brought forward loss − amount used.

Common mistakes in Capital Losses and Relief

Setting the brought forward loss against gains before the current year loss.
Students treat all losses as one pool.
Fix: Always deduct current year losses first. Only then look at brought forward losses.
Deducting the annual exempt amount before current year losses.
Students think the annual exempt amount comes first in the computation.
Fix: Current year losses go first, then brought forward losses only as needed, then the annual exempt amount.
Using all the brought forward loss and wasting the annual exempt amount.
Students want to use up losses quickly.
Fix: Use brought forward losses only down to £3,000. The remaining loss is carried forward.
Restricting the current year loss to protect the annual exempt amount.
Students confuse the current year rule with the brought forward rule.
Fix: Current year losses are not optional. They must be set off in full, even if the annual exempt amount is wasted.
Carrying forward an unused annual exempt amount.
Students assume unused allowances roll forward like losses.
Fix: The annual exempt amount is lost if not used in the tax year.
Trying to set a capital loss against income.
Students mix it up with trading loss relief.
Fix: Capital losses can only be set against chargeable gains.

Worked examples

Example 1

In 2025–26 Priya made gains of £19,000 and a loss of £5,000 on separate disposals. She has capital losses brought forward of £9,000. Calculate her taxable gains and the loss carried forward.

Show the solution

Gains £19,000 less current year loss £5,000 = net gains £14,000.
Brought forward loss needed to reduce gains to £3,000 = £14,000 − £3,000 = £11,000.
Only £9,000 is available, so use all £9,000. Gains become £5,000.
Deduct annual exempt amount £3,000. Taxable gains = £2,000.
Loss carried forward = £9,000 − £9,000 = nil.

Answer: Taxable gains are £2,000 and no loss is carried forward.

Example 2

In 2025–26 Tom made a gain of £12,000 and a loss of £4,000. He has capital losses brought forward of £10,000. Calculate his taxable gains and the loss carried forward.

Show the solution

Gain £12,000 less current year loss £4,000 = net gains £8,000.
Brought forward loss used = £8,000 − £3,000 = £5,000.
Gains after brought forward loss = £3,000.
Deduct annual exempt amount £3,000. Taxable gains = nil.
Loss carried forward = £10,000 − £5,000 = £5,000.

Answer: Taxable gains are nil and £5,000 of loss is carried forward.

Exam tips

Write the set-off order as a layout in your answer: gains, current year losses, brought forward losses, annual exempt amount. Marks follow the layout.
In objective test questions, check whether the loss is current year or brought forward before you calculate anything.
Always state the loss carried forward at the end. Constructed response questions often award a mark for it.
If net gains are already £3,000 or less after current year losses, say that no brought forward loss is used.
Use the £3,000 annual exempt amount from the rates and allowances provided, and do not forget to apply the correct 18% or 24% rate afterwards.

Practice questions from The basic principles of computing gains and losses

Capital Losses and Relief 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 Relief: frequently asked questions

Are current year capital losses set off before the annual exempt amount?

Yes. Current year losses are deducted from current year gains in full, before the annual exempt amount. This can waste some or all of the £3,000 allowance.

What is the difference between current year and brought forward capital losses?

Current year losses must be used in full against gains of the same year. Brought forward losses are used only to the extent needed to reduce gains to the annual exempt amount, and any excess is carried forward.

Can capital losses be set against income?

No. Capital losses can only be set against chargeable gains, now or in later years. They do not reduce income tax.

Is there a time limit for carrying forward capital losses?

Once a loss has been properly claimed, it can be carried forward without a time limit until there are gains to use it against. It must be set against gains as the rules above require.