Timeless tax relief

Ever since capital gains tax (CGT) was introduced in the 1960s the taxable amount of gains can be reduced by capital losses. A capital loss occurs when you sell or transfer an asset for less than you acquired it. That seems fair, but it’s not always that simple. There are special rules which determine when a loss can be set against a gain.

While generally any capital loss can be set against any gain, anti-avoidance rules limit the use of certain types of loss to similar gains, e.g. where the loss arose from a transaction with someone you’re connected with, such as your sibling or a direct descendant.

Excess losses

Capital losses can only be carried forward where they exceed all your gains of the same year. For example, if you made a capital gain of £20,000 in 2023/24 and in the same year made losses from other transactions of £15,000, the losses first reduce the gain to £5,000, further reduced by your annual CGT exemption of £3,000. You can’t use the exemption against the gain first so as to create a loss to carry forward.

Where it’s within your control, plan your losses. If you make gains that will be covered by your annual exemption, creating a loss will not improve your tax position. Therefore, if you can, defer a loss-making transaction to a year in which you don’t expect to have gains. That way the loss will be available to carry forward indefinitely to use against future gains.

Self-assessment time limit

When self-assessment was introduced it came with new rules for claiming capital losses, i.e. they can’t be used to reduce gains unless they have been reported to HMRC within four years of the end of the tax year in which they arose. If you made a loss in 2024/25, your claim must reach HMRC by including it on your self-assessment tax return or by separate claim no later than 5 April 2029.

A different time limit applies during an enquiry or if HMRC issues a discovery assessment, i.e. where it thinks you have under-declared your taxable liability. The deadline for claims here is usually one year from the end of the tax year in which the assessment was issued or the enquiry closed.

Pre self-assessment time limit

The timing of capital loss claims was a contentious issue for a while following the introduction of self-assessment. At first HMRC tried to impose a rule which said you must include details of capital losses brought forward from before self-assessment on your returns or they wouldn’t be allowed. However, it now accepts that a claim for pre self-assessment capital losses does not need to be made or quantified until you use all or part of the loss against a gain.

If you realise that you’ve overlooked capital losses from before 6 April 1996, you can still claim them. To make sure you don’t overlook them again, include them in the additional information section of your next self-assessment return.