How capital losses are set against gains — and the annual exempt amount

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The order, step by step

The Taxation of Chargeable Gains Act 1992 sets out the order. Capital Gains Tax is charged on your total gains for the tax year after deducting first the allowable losses of that year, and then any losses from earlier years not already used (section 1). Section 1K fixes where the annual exempt amount fits in: it is deducted after the current year’s losses but before losses brought forward.

HMRC’s Capital Gains Manual (CG21500) turns that into a working rule:

1. Deduct this year’s allowable losses from this year’s gains — even if the net gains fall below the annual exempt amount.
2. Then deduct unused losses brought forward from earlier years — but not so as to take net gains below the annual exempt amount.
3. Deduct the annual exempt amount. What’s left is taxable.

The amount of brought-forward losses used is the smaller of: the losses you have brought forward, and the amount needed to reduce your net gains to the annual exempt amount. The rest stays available for future years.

2023/242024/252025/262026/272027/28later →

Capital lossesSet against gains of the same year first

(loss)

Carried forward — no time limit

carry backcarry forward(loss) = the year the loss arises

Example 1: brought-forward losses only go down to the exempt amount

This is HMRC’s own example (CG21520, Example 3). It is for 2018-19, when the annual exempt amount was £11,700 — but the method is the same today.

Gains on listed shares	£16,300
Losses of the same year	minus (£3,500)
Net gains	£12,800
Losses brought forward used (smaller of £10,500 and £12,800 − £11,700)	minus (£1,100)
Gains after losses	£11,700
Annual exempt amount	minus (£11,700)
Chargeable to Capital Gains Tax	£0
Losses brought forward £10,500 − used £1,100 = £9,400 carried forward.

Example 2: the same rule with 2026/27 figures

For 2026/27 the annual exempt amount for individuals is £3,000. Suppose you have £14,000 of gains, a £2,500 loss in the same year and £9,000 of unused losses from earlier years:

Gains for the year	£14,000
Losses of the same year	minus (£2,500)
Net gains	£11,500
Losses brought forward used (£11,500 − £3,000)	minus (£8,500)
Gains after losses	£3,000
Annual exempt amount	minus (£3,000)
Taxable gains	£0
£9,000 − £8,500 = £500 of losses carried forward.

Put your own numbers into the capital loss set-off illustrator to see the same layout.

Why this year’s losses can "waste" your allowance

Because this year’s losses must be set off in full, they can take your gains below the annual exempt amount — and the unused part of the allowance is simply lost. HMRC’s manual is clear that the annual exempt amount relates to one tax year only: if it isn’t used, it can’t be carried forward or back.

In HMRC’s Example 2 (CG21520), gains of £20,000 and losses of £25,000 in the same year leave net losses of £5,000 to carry forward. No tax is due, and the annual exempt amount for that year goes unused.

Gains taxed at different rates

From 6 April 2026, individuals pay Capital Gains Tax at 18% and 24%, and gains qualifying for Business Asset Disposal Relief or Investors’ Relief are taxed at 18%. Section 1F says allowable losses can be deducted in whichever way is most beneficial to you, regardless of the rate the gain would be taxed at — and section 1K(5) says the same of the annual exempt amount. HMRC’s manual says this will generally mean setting them against the gains charged at the highest rate.

Losses can’t usually be carried back

Unused capital losses go forward, not back. HMRC’s manual lists only narrow exceptions. The main one for individuals: losses in the tax year someone dies that can’t be used against that year’s gains may be carried back against gains of the 3 previous tax years, latest year first — and, as with brought-forward losses, only down to each year’s annual exempt amount (section 62(2); HMRC helpsheet HS282). Losses not used that way are lost: personal representatives and beneficiaries can’t use them.

Unused losses carry forward

Losses that can’t be used are carried forward to set against future gains. The legislation refers to losses of "any previous tax year", and none of the HMRC guidance we read puts a time limit on using a loss once it has been claimed. The 4-year limit applies to claiming the loss in the first place — see how to claim a capital loss.

Questions people ask

Will losses brought forward waste my annual exempt amount?

No. Losses brought forward from earlier years are only used to bring your gains down to the annual exempt amount (£3,000 in 2026/27) — the rest carries on. It is losses made in the same tax year that are set off in full, even if that takes your gains below the allowance. Try the set-off illustrator.

Can I carry a capital loss back to an earlier year?

Generally not — capital losses carry forward. The main exception is the tax year someone dies: losses that can’t be used in that year can be carried back against gains of the three previous tax years, latest first, only down to each year’s annual exempt amount.

Sources

Checked 4 October 2026 for the 2026/27 tax year. We read these primary sources for this guide:

1. GOV.UK: Capital Gains Tax — If you make a loss (gov.uk)
2. GOV.UK: Capital Gains Tax rates and allowances (gov.uk)
3. HMRC Capital Gains Manual CG21500: Individuals — losses (gov.uk)
4. HMRC Capital Gains Manual CG21520: Losses — examples 1 to 5 (gov.uk)
5. HMRC Capital Gains Manual CG18000: Annual exempt amount (gov.uk)
6. Taxation of Chargeable Gains Act 1992, section 1 (legislation.gov.uk)
7. Taxation of Chargeable Gains Act 1992, section 1F (deduction of losses) (legislation.gov.uk)
8. Taxation of Chargeable Gains Act 1992, section 1K (annual exempt amount) (legislation.gov.uk)
9. Taxation of Chargeable Gains Act 1992, section 62 (death) (legislation.gov.uk)
10. HMRC helpsheet HS282: Death, personal representatives and legatees (gov.uk)

Contains public sector information licensed under the Open Government Licence v3.0. This guide adapts and summarises that information in our own words. taxloss.co.uk is an independent guide. It is not affiliated with, endorsed by or connected to HM Revenue & Customs (HMRC) or the UK Government. Spotted something out of date? Tell us.

More on capital gains losses

• 01Capital losses: what counts as an allowable lossWhen you sell or give away an asset for less than it cost you, you may have a capital loss. It only reduces your tax once it is an "allowable loss" — which depends on the asset and on telling HMRC in time.
• 02How to claim a capital loss — and the 4-year time limitA capital loss only counts once you have told HMRC about it, with the amount. Here’s how to do that on your tax return or by letter, and the deadline you must meet.
• 04Losses on disposals to family and connected peopleSell or give something to a relative, business partner or a company you control and make a loss, and that loss is "clogged" — you can only use it against gains on other disposals to the same person. Transfers to a spouse or civil partner usually give no loss at all.
• 05Shares that have become worthless: negligible value claimsIf shares (or other assets) you still own have become worth next to nothing, a negligible value claim lets you be treated as having sold them, creating a capital loss. The claim can be backdated — within limits.
• 06Share loss relief: setting a loss on shares against incomeLosses on shares you subscribed for in a qualifying unlisted trading company — including EIS and SEIS shares — can sometimes be set against your income instead of only against gains. The claim has a shorter deadline.
• 07Cryptoasset lossesSelling, swapping or spending tokens for less than their cost gives a capital loss you can claim like any other. HMRC treats lost keys and theft differently — and worthless tokens need a negligible value claim on the whole pool.
• 08Losses when you sell property — and the 60-day UK property returnA loss on selling a second home, buy-to-let or land is a capital loss you claim in the usual way. UK residents normally only use the 60-day "Capital Gains Tax on UK property" service when tax is due — non-residents must report every disposal, even a loss.