Taxation (UK) · The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Capital Losses Relief for Individuals 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 the annual exempt amount would have covered them. Unused loss carries forward against later gains, only down to the annual exempt amount. Losses are set only against gains, except certain unquoted company share losses (e.g. EIS shares), which can be set against income.

Understand Capital Losses and Loss Relief Planning

A capital loss arises when you dispose of a chargeable asset for less than its allowable cost. The loss is useful only if you have gains to set it against. Losses on exempt assets, such as a private car, are not allowable.

The rules depend on when the loss arises. A current year loss is set against gains of the same tax year. You cannot pick which gains, and you cannot leave the loss unused to protect the annual exempt amount. The loss is deducted in full, so the annual exempt amount of £3,000 can be wasted.

If current year losses exceed current year gains, the excess is a brought forward loss for later years. It is set against future gains, but only as far as needed to reduce net gains to the annual exempt amount. This protects the annual exempt amount. The loss carries forward indefinitely, provided it has been reported to HMRC within the time limit.

Order matters. Current year losses are always used first. Only then are brought forward losses used, and only to the extent needed. Where gains are taxed at different rates, losses and the annual exempt amount are set against gains in the way that saves the most tax. In practice this means gains taxed at the highest rate are relieved first: gains at 24%, then gains at 18%. Gains qualifying for business asset disposal relief are taxed at 14%, so they come after those. Treat this as the approach that saves tax, not as a fixed rule, and follow any instruction in the question. Read the question carefully to see which gains qualify.

Losses on certain unquoted trading company shares (for example EIS shares) can be set against income instead. This is a specific relief and is not available for every share loss, so check the conditions in your study material. Losses on disposals to connected persons can be set only against gains on disposals to the same person.

Key rules to remember

Current year loss: Net gain = Gains of the year − Current year losses; Set in full, even if this wastes the annual exempt amount. Cannot be restricted.
Brought forward loss: Loss used = Net current gains − Annual exempt amount (£3,000), limited to the loss available; Only used to reduce gains to the annual exempt amount. Any remaining loss carries forward.
Taxable gain: Taxable gain = Net gains after losses − Annual exempt amount; Annual exempt amount is £3,000. Rates are 18% (lower) and 24% (higher). Gains qualifying for business asset disposal relief are taxed at 14%.
Order of set-off: Current year losses first, then brought forward losses; Where gains are taxed at different rates, set losses and the annual exempt amount against gains in the way that saves the most tax. That means gains taxed at the highest rate are relieved first (24%, then 18%, then 14% for business asset disposal relief gains). Treat this as an approach, not a fixed rule.
Annual exempt amount: Unused annual exempt amount is lost, never carried forward; Do not set current year losses so as to leave it unused; the rule gives no choice.

How to solve Capital Losses and Loss Relief Planning questions

Use this order for any question on capital losses for an individual.

1List every disposal in the tax year and compute each gain or loss. Ignore exempt assets.
2Total the gains and the current year losses separately.
3Deduct current year losses from current year gains in full. Do not hold any back.
4If a net gain remains, deduct brought forward losses only to reduce it to £3,000. Keep any loss left over.
5If current year losses exceed gains, carry the unused loss forward and note that the annual exempt amount is wasted.
6Deduct the annual exempt amount to find the taxable gain. Then apply the rates: the part of the taxable gain that falls within any unused basic rate band is taxed at 18%, and the rest at 24%. The rate depends on the unused basic rate band, not on the label 'higher rate taxpayer'.
7State the loss carried forward to the next year.

Quickest way: Three-line loss table

When to use it: Use in objective test questions and in the first minutes of a constructed response question.

Write: Gains, less current losses = net gain.
If net gain is above £3,000, use brought forward loss only for the excess over £3,000.
Write the loss carried forward and the taxable gain, then multiply by the correct rate.

Common mistakes in Capital Losses and Loss Relief Planning

Holding back a current year loss to protect the annual exempt amount.
Students apply the brought forward rule to every loss.
Fix: Current year losses are always set off in full. Only brought forward losses stop at the annual exempt amount.
Using brought forward losses before current year losses.
Students process the losses in the order they appear in the question.
Fix: Always deduct current year losses first, then brought forward losses.
Using all of a brought forward loss and wasting the annual exempt amount.
Students assume bigger loss relief is better.
Fix: Deduct only enough to leave gains equal to £3,000. Carry forward the rest.
Setting a capital loss against income.
Students confuse trading losses with capital losses.
Fix: Capital losses go against gains only, except in the specific share loss relief against income, where its conditions are met.
Including losses on exempt assets, such as a private car.
Students compute every disposal without checking the asset.
Fix: Check whether the asset is exempt before computing. Exempt assets give neither gain nor allowable loss.

Worked examples

Example 1

In 2025–26 Priya has chargeable gains of £14,000 and a current year capital loss of £5,000. She has a brought forward loss of £4,000. She is a higher rate taxpayer with no unused basic rate band. Compute her CGT and the loss carried forward.

Show the solution

Net current gains: £14,000 − £5,000 = £9,000.
Maximum brought forward loss usable: £9,000 − £3,000 = £6,000.
Brought forward loss available is £4,000, which is less than £6,000, so use all £4,000.
Gain after losses: £9,000 − £4,000 = £5,000.
Less annual exempt amount £3,000 = taxable gain £2,000.
Priya has no unused basic rate band, so all of the gain is taxed at 24%: £2,000 × 24% = £480.
Loss carried forward: nil.

Answer: Taxable gain £2,000; CGT £480; no loss carried forward.

Example 2

In 2025–26 Tom has a gain of £8,000 and a current year loss of £2,000. He has a brought forward loss of £10,000. He is a basic rate taxpayer with ample unused basic rate band. Compute the taxable gain and loss carried forward.

Show the solution

Net current gain: £8,000 − £2,000 = £6,000.
Use brought forward loss only to reduce the gain to £3,000: £6,000 − £3,000 = £3,000 used.
Gain after loss: £3,000. Annual exempt amount of £3,000 covers it, so taxable gain is nil.
Loss carried forward: £10,000 − £3,000 = £7,000.

Answer: Taxable gain nil; £7,000 of loss carried forward.

Exam tips

Look for the words current year and brought forward. They change the answer.
In a computation, always show the loss carried forward. Marks are often awarded for it.
Use the rates provided: 18% and 24%, 14% for business asset disposal relief gains, and an annual exempt amount of £3,000.
In objective tests, calculate net gain first, then apply the £3,000 floor only to brought forward losses.
Where gains are taxed at different rates, set losses and the annual exempt amount against gains in the way that saves the most tax. This usually means the highest-rate gains (24%, then 18%, then 14%) are relieved first. Explain your approach briefly in a written answer.

Practice questions from The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Capital Losses and Loss Relief Planning 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 Loss Relief Planning: frequently asked questions

Can I choose not to use a current year capital loss?

No. Current year losses must be set against current year gains in full. This can waste the annual exempt amount, so check the figures carefully.

How much of a brought forward loss can I use?

Only as much as reduces net gains for the year to the annual exempt amount of £3,000. The rest is carried forward to later years.

Can capital losses be set against income?

Generally no. Capital losses are set against gains only. There is a specific relief for certain losses on shares, subject to conditions in your study material.

Do losses carry forward indefinitely?

Yes, an unused loss carries forward without time limit, provided it was properly claimed and reported within the required time limit.