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Taxation (UK) · The computation of capital gains tax

Capital Gains Tax Annual Exempt Amount and Losses

Updated 11 October 2026 · Fact-checked

Every individual has a £3,000 annual exempt amount for capital gains tax. Current year losses must be set against current year gains in full, even if this wastes the exemption. Brought forward losses are used only to reduce net gains down to £3,000. Any unused loss carries forward. Losses in the year of death can be carried back three years.

Understand Annual Exempt Amount and Losses

Capital gains tax (CGT) is charged on an individual's taxable gains, not on every gain. Each individual gets an annual exempt amount (AEA). For the Finance Act 2025 rules examined in this period, the AEA is £3,000. It is deducted from net gains after losses. It is lost if you do not use it. It cannot be carried forward or back, and it cannot be transferred to a spouse.

A capital loss arises when an asset is sold for less than its cost (after allowable costs). Capital losses are normally set only against capital gains, not against income. The order in which you use them matters, because the AEA is at stake.

Current year losses are losses arising in the same tax year as the gains. You have no choice. They are set against that year's gains in full, even if this takes the gains below £3,000 and wastes part of the AEA.

Brought forward losses are unused losses from earlier years. They are different. They are set against gains only as far as needed to reduce net gains to the AEA. This protects the exemption. Any loss left over is carried forward with no time limit. The loss must have been reported to HMRC within four years of the end of the tax year in which it arose.

In the year of death, losses are first set against gains of that year. Any unused loss can then be carried back against gains of the three tax years before the year of death, latest year first. A spouse can use losses only on their own gains.

When gains are taxed at different rates, the AEA and losses are best used against gains taxed at the highest rate first. In this paper the rates are 18% and 24%, with 14% for business asset disposal relief and investors' relief gains.

Key rules to remember

Annual exempt amount
AEA = £3,000 per individual per tax year
Use it or lose it. No carry forward. Not transferable between spouses.
Taxable gains
Taxable gains = Gains − current year losses − brought forward losses (only down to the AEA) − AEA
Never let taxable gains go below nil.
Current year losses
Set against current year gains in full
Applies even if it wastes the AEA. No choice.
Brought forward losses
Loss used = Net gains after current year losses − £3,000 (limited to loss available)
Only used to the extent needed. The balance is carried forward indefinitely.
Losses in year of death
Set against gains in the year of death, then carried back three years, latest year first
Applies to unused losses of the year of death.
Rates on taxable gains
18% within the basic rate band, 24% above it; 14% for gains qualifying for BADR or investors' relief
Use any unused basic rate band after taxable income. Apply AEA and losses to the highest-rate gains first.

How to solve Annual Exempt Amount and Losses questions

Follow this order for any question on the AEA and losses. The order protects the AEA and picks up the marks for each step.

  1. 1List all gains and all losses for the tax year. Compute each gain or loss first, if needed.
  2. 2Add up the current year losses and deduct them from the current year gains in full. Do this even if the result is below £3,000.
  3. 3If the net gain is above £3,000, work out the gap: net gain minus £3,000. Use brought forward losses up to this gap and no more.
  4. 4Deduct the AEA of £3,000 (or what is left of it). Taxable gains cannot be below nil.
  5. 5Calculate the loss carried forward: brought forward loss available less loss used. Add any current year loss not used (when losses exceed gains).
  6. 6If gains are taxed at different rates, deduct losses and the AEA from gains taxed at the highest rate first.
  7. 7Compute the tax using the unused basic rate band at 18% and the rest at 24% (or 14% for BADR gains).
  8. 8Show the loss carried forward clearly at the bottom.

Quickest way: Three-line loss and AEA check

When to use it: Use it in Section A and Section B objective questions, and as a check on Section C workings.

  1. Net the current year losses against the gains first. If gains are now below £3,000, stop: nothing is taxable, and the brought forward losses are untouched.
  2. If gains are above £3,000, subtract £3,000. The result is the most brought forward loss you can use.
  3. Use the lower of that figure and the brought forward loss available. What is left of the loss is carried forward. Taxable gain = net gain − loss used − £3,000.

Common mistakes in Annual Exempt Amount and Losses

  • Using brought forward losses to reduce gains to nil, so wasting the AEA.

    Students treat all losses alike and set them all against the gain.

    Fix: Only current year losses are used in full. Brought forward losses stop at £3,000 of net gains.

  • Using the AEA before deducting losses.

    Students think of the AEA as the first deduction.

    Fix: The order is gains, then current year losses, then brought forward losses (to the AEA), then the AEA.

  • Carrying forward the AEA or a spouse's AEA.

    Confusion with other allowances that can be carried or transferred.

    Fix: Each individual has their own £3,000 for each tax year. It is lost if unused.

  • Setting a capital loss against income or taking a choice over current year losses.

    Mixing up CGT losses with trading losses, which can be offset against income.

    Fix: Capital losses go against gains. Current year losses are mandatory, not elective.

  • Carrying a loss forward as if some had been used, or forgetting the leftover loss.

    The brought forward loss used is not tracked separately.

    Fix: Write: loss b/f, loss used, loss c/f. The balance after use carries forward.

  • Ignoring the rate structure when the question has gains at different rates.

    Students apply the AEA to whichever gain comes first in the question.

    Fix: Offset losses and the AEA against gains taxed at the highest rate first, to save most tax.

Worked examples

Example 1

Amara made gains of £20,000 in the tax year and a capital loss of £5,000 in the same year. She has capital losses brought forward of £15,000. Compute her taxable gains and the loss carried forward.

Show the solution
  1. Gains for the year: £20,000.
  2. Current year loss set off in full: £20,000 − £5,000 = £15,000.
  3. Net gain above AEA: £15,000 − £3,000 = £12,000. This is the most brought forward loss that can be used.
  4. Brought forward loss used: £12,000 (available £15,000). Gain is now £15,000 − £12,000 = £3,000.
  5. Deduct AEA: £3,000 − £3,000 = nil. Taxable gains are nil.
  6. Loss carried forward: £15,000 − £12,000 = £3,000.

Answer: Taxable gains are nil. The AEA is fully used. Losses of £3,000 are carried forward.

Example 2

Ben made chargeable gains of £38,000 in the year (none qualify for BADR) and a current year loss of £6,000. He has losses brought forward of £4,000. He has £10,000 of his basic rate band unused after taxable income. Compute his CGT. Use the rates of 18% and 24%.

Show the solution
  1. Gains £38,000 less current year loss £6,000 = £32,000.
  2. Gap to the AEA: £32,000 − £3,000 = £29,000. Brought forward loss available is only £4,000, so use all £4,000.
  3. Net gain after losses: £32,000 − £4,000 = £28,000.
  4. Deduct AEA: £28,000 − £3,000 = £25,000 taxable gains.
  5. Gains in the unused basic rate band: £10,000 × 18% = £1,800.
  6. Remaining gains: £25,000 − £10,000 = £15,000 × 24% = £3,600.
  7. Total CGT: £1,800 + £3,600 = £5,400. No loss is carried forward.

Answer: CGT payable is £5,400. There is no loss left to carry forward.

Exam tips

  • Write the order down every time: current year losses, then brought forward losses down to the AEA, then the AEA. Examiners award method marks for this order.
  • The AEA of £3,000 and the 18% and 24% rates are given in the tax tables in the exam. Check them rather than relying on memory.
  • If a question gives current year losses larger than gains, say so: no gain, no tax, and the excess loss is carried forward. The AEA is wasted.
  • In objective questions, look for the trap: brought forward losses used in full to nil, or the AEA taken first. Both give a wrong answer, and these questions score all or nothing.
  • For a death question, remember the three-year carry back is latest year first and applies only to losses unused in the year of death.

Practice questions from The computation of capital gains tax

Annual Exempt Amount and Losses in other exams

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

Annual Exempt Amount and Losses: frequently asked questions

What is the capital gains tax annual exempt amount for TX-UK?

For the Finance Act 2025 rules ACCA examines in the period to June 2027, the annual exempt amount is £3,000 for an individual. It is given in the tax rates and allowances provided in the exam. Always check the table in your exam.

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

Current year losses must be set against that year's gains in full, even if the AEA is wasted. Brought forward losses are used only to reduce net gains to the AEA. Any balance is carried forward with no time limit.

Can capital losses be set against income?

Generally no. Capital losses are set against capital gains only. Some specific reliefs exist for certain share losses, but these are a separate topic.

What happens to capital losses in the year of death?

They are set against gains of the year of death first. Any unused loss can then be carried back against gains of the three previous tax years, using the latest year first.