Advanced Taxation (UK) · Corporation tax: chargeable gains for companies

Capital Losses and Chargeable Gains Group Relief for Companies

Updated 11 October 2026 · Fact-checked

A company's capital losses can only be set against chargeable gains, never against income. Set current-year losses first, then carry any excess forward indefinitely, subject to the deductions allowance restriction. In a gains group, you can transfer assets at no gain, no loss, or jointly elect to move a gain or loss to another member.

Understand Capital Losses and Chargeable Gains Group Relief

A company has no annual exempt amount and no separate capital gains tax. Its chargeable gains are added to its profits and taxed as part of taxable total profits at corporation tax rates. A capital loss is different from a trading loss. It is only an allowable loss if it would be a chargeable gain had the sale produced a profit.

The key restriction is that capital losses can only be set against chargeable gains. They cannot be set against trading profits, property income or interest. This is the point students most often get wrong, and the search question "can capital losses be set against income for companies" has the answer no.

The order of use is fixed. First, set allowable losses of the current period against gains of the same period. You cannot choose to leave some gain uncovered. Any net loss is carried forward and set against future gains of the same company, with no time limit. Brought forward losses are used only against what is left after the current-year loss.

Carried forward losses of all types, including capital losses, are subject to the deductions allowance restriction. The allowance is shared across a group. This guide does not rely on a fixed figure for it, so use the amount given in the exam question. Above the allowance, only 50% of the remaining profit can be covered by brought forward losses. Current-year losses are not subject to this restriction. In most exam questions the gains are small compared with the allowance, so the restriction is a point to mention rather than calculate.

A gains group is a principal company and its 75% subsidiaries. For an indirect subsidiary, the principal company must also hold an effective interest of more than 50%. Capital losses cannot be surrendered by group relief as trading losses can. Instead, groups have two tools. First, transfers of assets between group members are treated as made at no gain, no loss. Second, two members can make a joint election to treat a gain or loss on a disposal outside the group as if it had been realised by the other company. This lets you match a loss with a gain across the group.

Key rules to remember

Capital loss use against gains: Capital losses can only be set against chargeable gains; Never against trading profits, property income or other income. Companies have no annual exempt amount.
Order of set-off: Current-year gains − current-year losses − brought forward losses = net chargeable gain; Current-year losses are used first and in full. Brought forward losses cover only the remaining gain, and unused losses carry forward without time limit.
Net current-year loss: If current-year losses > current-year gains, excess is carried forward; Brought forward losses are not used in that period.
Deductions allowance restriction: Brought forward losses covering profits above the allowance are limited to 50% of those profits; Applies to carried forward losses only, not current-year losses. The allowance is shared across a group. Use the figure given in the exam question.
Gains group test: Principal company and 75% subsidiaries; indirect subsidiaries need an effective interest above 50%; Used for no gain, no loss transfers and for the joint election. This is separate from the group relief test for income losses.
Intra-group transfer: Transfer at no gain, no loss (TCGA 1992 s171); Deferral only. The gain or loss is realised when the asset leaves the group, or on degrouping.
Joint election to transfer gain or loss: Election by both companies within two years of the end of the accounting period of the disposal; The gain or loss is treated as arising in the other company. Use it to match a loss with a gain, or to use the lower tax rate or marginal relief band.
Corporation tax rates: Small profits rate 19% (profits ≤ £50,000); main rate 25% (profits > £250,000); marginal relief between; Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Limits are divided by the number of associated companies (1 + number of associates) and reduced for short periods.

How to solve Capital Losses and Chargeable Gains Group Relief questions

Use this method for any question on company capital losses or group gains. It works whether the question is on a single company or a group.

1Identify each disposal and compute each gain or allowable loss separately. Remember there is no annual exempt amount for companies.
2Total the gains and losses for the current accounting period. Set current-year losses against current-year gains first.
3If a net gain remains, deduct brought forward capital losses, either in full or until the gain is cleared. Check whether the deductions allowance restriction applies, but only if the figures are large.
4If there is a net current-year loss, carry it forward. State clearly that it cannot be set against income.
5Check group status: is there a 75% relationship, with an effective interest of more than 50% for indirect holdings? If so, consider no gain, no loss transfers and a joint election to move gain or loss.
6Decide who should hold the gain or loss. Compare each company's marginal rate of tax and look at the timing of payment.
7Add the net chargeable gain to taxable total profits, apply the relevant rate and finish with a short recommendation, including the election deadline.

Quickest way: Three-line loss matching

When to use it: Use this when you have limited time and the question gives several gains and losses, possibly in different group companies.

Write the current-year gains and losses for each company and net them. Do not set losses against income.
Only if there is a surplus gain, use brought forward losses. Say that the deductions allowance restriction is unlikely to bite unless gains are very large.
If another group company has a loss and this one has a gain, say that a joint election can move the loss across. Quantify the tax saving as the loss × the rate at which the gain would be taxed.

Common mistakes in Capital Losses and Chargeable Gains Group Relief

Setting a capital loss against trading profit or other income
Students remember trading loss relief and apply it to capital losses by habit.
Fix: Write at the start: capital losses only against chargeable gains.
Using brought forward losses before current-year losses, or choosing to leave some gain uncovered
Students treat loss relief as a free choice, as with trading losses.
Fix: Current-year losses go first and in full. Then use brought forward losses on the remaining gain.
Claiming a capital loss can be group relieved like a trading loss
Group relief of income losses is well known, and students confuse the two regimes.
Fix: State that capital losses move only by a no gain, no loss transfer of the asset or by a joint election, within a gains group.
Missing the election conditions
Students describe the benefit but forget that both companies must agree and a time limit applies.
Fix: Say: joint election by both companies within two years of the end of the accounting period of the disposal.
Applying the deductions allowance to current-year losses
The restriction is remembered but not the scope.
Fix: It applies only to carried forward losses. Current-year losses are unaffected.
Applying the gains group 75% test to indirect holdings without the effective interest test
Students rely on a single percentage and do not trace the interests.
Fix: For indirect subsidiaries in a gains group, check both the 75% holdings through the chain and that the principal company's effective interest is more than 50%. Keep this separate from the group relief test for income losses.

Worked examples

Example 1

Alpha Ltd has a year ended 31 March 2026 with trading profits of £400,000. It sold shares for a chargeable gain of £80,000 and land for an allowable loss of £30,000. It has a brought forward capital loss of £25,000. There are no dividends and no associated companies. Compute the net chargeable gain, taxable total profits and the corporation tax.

Show the solution

Current-year net position: £80,000 gain − £30,000 loss = £50,000 net gain.
Brought forward capital loss: £50,000 − £25,000 = £25,000 net chargeable gain. The loss is fully used, so nothing is carried forward.
The brought forward loss is small, so on these figures the deductions allowance restriction is not a concern.
Taxable total profits: £400,000 + £25,000 = £425,000.
Profits exceed £250,000, so the main rate of 25% applies with no marginal relief.
Corporation tax: £425,000 × 25% = £106,250.

Answer: Net chargeable gain £25,000. Taxable total profits £425,000. Corporation tax £106,250.

Example 2

P Ltd owns 100% of S Ltd. Neither company has any other associated companies. In the year ended 31 March 2026, S Ltd sells an asset outside the group for a chargeable gain of £90,000 and has trading profits of £300,000. P Ltd sells an asset for an allowable capital loss of £70,000 and has no gains. Explain how the group can reduce its tax and compute the saving.

Show the solution

P Ltd's capital loss cannot be set against its trading profits or other income. Without action, it is carried forward until P Ltd has a gain.
P Ltd and S Ltd form a gains group, as S Ltd is a 100% subsidiary.
P Ltd and S Ltd are also associated companies, so the profit limits are divided by two: the lower limit is £25,000 and the upper limit is £125,000.
Both companies can make a joint election to treat P Ltd's loss as if it had been realised by S Ltd. The election is made within two years of the end of the accounting period of the disposal.
S Ltd without election: taxable total profits £300,000 + £90,000 = £390,000. This is above £125,000, so the 25% main rate applies: £390,000 × 25% = £97,500.
S Ltd with election: net gain £90,000 − £70,000 = £20,000, so taxable total profits £320,000. This is still above £125,000, so the 25% main rate applies: £320,000 × 25% = £80,000.
Saving: £97,500 − £80,000 = £17,500, which equals £70,000 × 25%.

Answer: Make a joint election to transfer P Ltd's £70,000 loss to S Ltd. S Ltd's profits stay above the associated company upper limit of £125,000, so the 25% rate applies in both cases. Its corporation tax falls from £97,500 to £80,000, a saving of £17,500.

Exam tips

State the rule first: capital losses only against chargeable gains. It earns an easy mark and avoids the commonest error.
In group questions, write down the percentage ownership to show the 75% test. Use the effective interest test for indirect holdings.
Always mention that the election is joint and has a two-year time limit. These are cheap marks.
Quantify the benefit using the rate at which the gain would otherwise be taxed. Check whether marginal relief or associated companies change the rate.
Use professional skills marks by finishing with a short recommendation to the client or director, with the cash flow effect and any risk.

Practice questions from Corporation tax: chargeable gains for companies

Capital Losses and Chargeable Gains Group 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 Chargeable Gains Group Relief: frequently asked questions

Can company capital losses be set against income?

No. A company's capital losses can only be set against its chargeable gains. They cannot reduce trading profits, property income or interest. If they cannot be used, they are carried forward.

Do company capital losses carry forward indefinitely?

Yes. Any net capital loss is carried forward and set against future chargeable gains of the same company with no time limit. Brought forward losses of all types are subject to the deductions allowance restriction.

How can a group use a capital loss in one company against a gain in another?

Two companies in a gains group can make a joint election to treat a gain or loss as arising in the other company. The election must be made within two years of the end of the accounting period of the disposal. Alternatively, transfer the asset between them at no gain, no loss before sale.

What is the deductions allowance restriction?

It limits the use of brought forward losses once profits exceed a deductions allowance, which is shared across a group. Above the allowance, only 50% of the remaining profits can be covered. Use the figure stated in the exam, and note that it does not apply to current-year losses.