Can You Offset Capital Gains with Losses in the UK? A Practical Guide for 2026 Tax Year
When it comes to Capital Gains Tax (CGT) in the UK, a common and pressing question I get from clients—whether employees, self-employed, or business owners—is: “Can I offset capital gains with losses?” The short, reassuring answer is yes, but the way this works can have numerous nuances, especially if you’re juggling multiple income streams, varying asset types, or even dealing with different UK tax jurisdictions like Scotland and Wales.
In this article, we’ll cut through the jargon and demystify the capital gains and losses offsetting rules for the 2025/26 tax year, highlighting practical steps and calculations you can apply to check your tax position. Whether you’re trying to verify if your tax code is correct or to spot potential overpayments and refunds, or you’re a business owner looking to optimise your CGT liabilities—this detailed yet accessible guide will take you through it all, with real-life examples and handy worksheets.
Connecting to Your Intent: Why You Searched This
Most UK taxpayers and business owners searching for “can you offset capital gains with losses in the UK?” want actionable advice that helps them:
- Understand if and how losses can reduce CGT due on gains.
- Calculate and verify CGT liabilities accurately.
- Apply this knowledge to their personal or business tax affairs realistically.
- Navigate UK-specific tax bands, exemptions, and deadlines.
- Handle complexities like multiple jobs or income sources, and regional tax variations.
- Find ways to claim refunds or adjust overpaid taxes legitimately.
Let’s talk through everything, starting with the basics that unlock your understanding and then exploring practical applications.
What Exactly Are Capital Gains and Losses?
Capital gains arise when you sell or dispose of an asset (shares, property, business assets except your main home, etc.) for more than you bought it. Conversely, a capital loss happens when you sell an asset for less than you paid.
Your capital gain is typically the difference between the sale proceeds and the asset’s original cost, minus any allowable costs like improvements or fees.
Can You Offset Capital Gains With Losses?
Yes, capital losses can be offset against capital gains in the same tax year. If your losses exceed your gains for the tax year, the remaining losses can be carried forward indefinitely to offset gains in future years. However, losses must be formally reported to HMRC to be allowable.
How the offset works:
- Losses incurred in the same tax year reduce gains first.
- If losses exceed gains, the excess “allowable losses” carry forward to future years.
- Losses can be offset strategically to minimise tax due by applying them against gains attracting the highest CGT rates.
Let’s illustrate this with a simple example:
Description | Amount (£) |
Capital gains | 10,000 |
Capital losses | 15,000 |
Losses offset on gains | 10,000 |
Losses carried forward | 5,000 |
Taxable gain after offset | 0 |
This example means the 10,000 gain is fully wiped out by losses, with 5,000 losses ready to reduce future gains.
Key 2025/26 CGT Rates and Annual Exemptions to Know
For the 2025/26 tax year, the personal CGT annual exempt amount remains at £6,000 (down from £12,300 in 2023/24). This exemption means only gains exceeding £6,000 attract CGT. The rates depend on your total income and the type of asset.
Band | CGT Rate on Gains |
Basic rate taxpayers | 10% (18% on residential property) |
Higher/additional rate taxpayers | 20% (28% on residential property) |
Scottish taxpayers follow the same CGT logic but different income tax bands that affect CGT rates indirectly, as CGT rates depend on your total income’s position within income tax brackets.
Real-World Planning: How to Check and Apply This in Practice
Step 1: Identify Your Gains and Losses
Collect all records of disposals for the year, including sale and purchase prices, and allowable costs.
Step 2: Calculate Your Net Gain
Subtract losses against gains within the same tax year.
Step 3: Deduct Annual Exemption
Apply the £6,000 exemption to reduce your taxable gain.
Step 4: Consider Any Carried Forward Losses
If your gains still exceed the exempt amount, and you have losses from previous years, apply those to reduce the gain further.
Step 5: Calculate CGT Due
Apply the appropriate CGT rate based on your income tax band.
Practical Example for an Employee with Side Income
Picture this: You’re an employee with your main PAYE income taxed at 20%, but you also have investment shares sold this year.
- Shares sold for a £10,000 gain.
- You Offset £3,000 of previous years’ carried forward losses.
- Your other capital losses from this tax year are £2,000.
- Your total net gain is £10,000 – (£3,000 + £2,000) = £5,000.
- Deduct £6,000 annual exemption – result: £0 taxable gain, no CGT due.
You just saved potentially hundreds in CGT by smartly offsetting losses—exactly what HMRC rules allow but many overlook.
Business Owners: Special Considerations
If you run a business and sell business assets or shares, the interplay of Capital Gains Tax with reliefs like Business Asset Disposal Relief (BADR) can be complex. Losses are usually first offset against gains attracting the highest rates, so you want to manage which gains losses apply to.
- Losses can reduce gains below BADR thresholds, preserving relief eligibility.
- Gifting assets between spouses can double combined allowances.
- Staggering asset sales over tax years can maximise annual exemptions.
In my experience advising clients in London, these nuanced approaches often make the difference between a hefty CGT bill and significant savings.
Can You Offset Capital Gains with Losses?
A Practical Visual Guide for UK Taxpayers & Business Owners for the 2025/26 Tax Year
The Essentials: Capital Gains & Losses
Capital gains arise when you sell an asset (like shares, property, or business assets) for more than you originally paid for it. Conversely, a capital loss occurs when you sell an allowable asset for less than its purchase price. The great news? Yes, you can offset these losses against your gains to significantly reduce your tax liability. Let's look at the core numbers for the current tax year.
How The Offset Works
Losses incurred in the same tax year reduce your gains first. If your losses are greater than your gains, the excess becomes "allowable losses" that carry forward indefinitely to future years. Losses are applied to total gains before your £3,000 tax-free allowance is deducted.
Case Study 1: The Basics
- 🟢 Gain: £10,000
- 🔴 Loss: £15,000
- ➡️ Taxable Gain: £0
Real-World Application
Consider an employee with basic rate PAYE income who sells investment shares for an £8,000 gain. They also have £2,000 in current losses, and £3,000 in carried forward losses from previous years. By smartly applying these, they completely eliminate their tax bill.
Case Study 2: Employee with Side Income
How an £8,000 capital gain is legally reduced to zero taxable gain.
Business Owners: Special Considerations
If you run a business and sell business assets or shares, the interplay of Capital Gains Tax with reliefs like Business Asset Disposal Relief (BADR) requires careful strategic planning. Make sure losses are formally reported on your Self-Assessment to ensure they don't go to waste.
Preserving Reliefs
Losses can reduce gains below BADR lifetime limits, effectively preserving your relief eligibility for the future when the 14% rate is most beneficial.
Spousal Transfers
Gifting assets between spouses or civil partners is generally "no gain, no loss". This allows couples to effectively double their combined annual exemptions to £6,000 before selling.
Staggering Sales
Staggering asset sales over multiple tax years can help you maximise your £3,000 annual exemption each year, preventing large spikes in taxable gains.
Practical Reporting, Advanced Calculations, and Business Owner Strategies for 2026
Picking up from where we left off on capital gains and losses offsetting, this second part dives deeply into how you actually report losses to HMRC, get your figures right, and use practical verification checks. Most importantly, it covers how to handle different scenarios you might face as an employee, a self-employed individual, or a business owner — including regional variances and tricky cases like emergency tax or high-income child benefit charge.
Reporting Losses and Gains: Essential Steps for 2025/26
First thing’s first: reporting your gains and losses on time is critical if you want to legally offset losses and reduce your tax bill.
When Must You Report Gains and Losses?
- If your total gains before losses exceed the annual exempt amount which is £3,000 for 2025/26 (further reduced from previous years).
- If the total sale proceeds from assets disposed of exceed £50,000, even if gains are below the exemption.
- If you want to claim a capital loss or any CGT relief aside from private residence relief.
- If you disposed of UK residential property, you must report and pay CGT within 60 days of completion.
If any of these apply, you must report the details to HMRC, either by including them in your Self Assessment tax return or using HMRC’s real-time Capital Gains Tax service if you meet conditions like no UK residential property involved. For residential property disposals, 60-day reporting through the online system is mandatory and separate from Self Assessment.
Step-by-Step Guide to Reporting and Calculating CGT Including Loss Offsets
Here’s a practical worksheet-style breakdown you can fill in to evaluate your CGT:
Step | Details / Your Figures |
1. Total gains on all disposals | £ |
2. Capital losses for the year | £ |
3. Losses offset in the year (max equal to gains) | £ |
4. Net gains after offset | = Step 1 – Step 3 |
5. Annual exempt amount | £3,000 for 2025/26 |
6. Taxable gains | = Step 4 – Step 5 (if positive) |
7. Your total taxable income (excluding gains) | £ |
8. CGT rate applicable (10/20% or 18/28%) | Determined by step 7 |
9. CGT due | = Step 6 x Step 8 |
Once you’ve completed these steps, you know exactly your CGT liability or whether losses have wiped it away entirely.
Real-World Example: Self-Employed with Mixed Income
Take John in Birmingham, self-employed and occasionally trading shares:
- He made £15,000 in capital gains and has £7,000 in capital losses from previous years.
- He’s earned £45,000 net in self-employment income.
- Applying losses reduces his gains to £8,000.
- Deduct the £3,000 exemption: £5,000 taxable gain.
- John’s total income (£45,000) plus gains (£5,000) fits within the higher-rate threshold (£50,270 for 2025/26 England/Wales), so CGT is 20%.
- John’s CGT = 20% × £5,000 = £1,000.
In my years advising clients, I’ve seen many underestimate how important carried forward losses are in smoothing out volatile income years and reducing surprises at self-assessment time.
Handling Complex Cases: Multiple Income Sources, Scottish & Welsh Differences
If you have multiple jobs or income streams, your combined income determines your CGT rates. Scottish taxpayers face slightly different income tax bands but CGT still relates to their income tax position.
Scottish 2025/26 thresholds are lower for higher rate taxation, so CGT on gains can hit the higher rate sooner. Welsh taxpayers follow UK income tax bands, so the same CGT rules as England apply.
Use HMRC’s personal tax account online to check income tax bands and projected CGT liabilities based on your total taxable income for the year at
www.gov.uk/check-income-tax-current-year
. This is a lifesaver for identifying whether your tax code is right or if adjustments are needed.
Business Owners: Maximise Reliefs & Manage CGT
Many business owners overlook formal loss claims or the strategic timing of asset disposals. Here’s some tailored advice:
- Business Asset Disposal Relief (BADR) can reduce CGT to 10% but applies only after losses offset gains.
- If you have capital losses, apply them first to gains not eligible for relief to preserve BADR benefits.
- Consider selling assets over multiple tax years to spread gains and maximise use of annual exemptions.
- In partnerships, losses and gains flow through to personal tax returns, so tracking carried forward losses individually is vital.
- Record all expenditure and improvements carefully to increase the base cost and reduce gains.
In my practice, I’ve often seen businesses lose out by delaying claims or failing to use carried forward losses because of disorganised record-keeping — don’t be that client.
Practical Tips to Avoid Pitfalls and Spot Errors
- Always report losses to HMRC within 4 years, or you lose the right to claim.
- Double-check your Self Assessment (SA) tax return’s CGT computation pages, especially if you have multiple types of gains.
- Review your tax code if you receive PAYE income with capital gains; sometimes HMRC overlooks side incomes in coding.
- If you pay tax via PAYE, but you have other sources of income causing CGT liability, consider registering for SA to avoid underpayments.
- Use HMRC’s CGT calculators and your personal tax account as practical tools to spot discrepancies before filing.
Rare but Important Scenarios Covered
- Emergency Tax and CGT: Emergency tax codes can indirectly affect your total income calculation, thereby altering your CGT bands — keep an eye out.
- High-Income Child Benefit Charge may reduce tax efficiency when combined with gains pushing income into higher brackets.
- IR35 for Freelancers: Tax changes affect how your income is assessed but gains and losses from investments or business asset sales remain separate; still worth factoring into your wider tax planning.
🇬🇧 UK Capital Gains Tax Calculator
Tax Year 2025/26 | Accurate CGT Calculation with All Relief Options
CGT Rates for 2025/26 Tax Year
Standard Assets (Shares, Crypto, etc.)
Residential Property
Special Rates
Basic Rate Band: Income up to £50,270 (£12,570 personal allowance + £37,700)
Higher Rate: Income £50,271 - £125,140
Additional Rate: Income above £125,140
Key Reliefs Available:
- Private Residence Relief (PPR): Main home is usually CGT-free
- Business Asset Disposal Relief: £1m lifetime limit at reduced rate
- Investors' Relief: £1m lifetime limit for qualifying shares
- Rollover Relief: Defer CGT when reinvesting in business assets
- Gift Hold-Over Relief: Defer CGT on gifts of business assets
Summary of Key Points
- Capital losses can offset gains in the same year or be carried forward indefinitely.
- For 2025/26, the annual CGT exemption is £3,000, significantly lower than previous years.
- You must report gains/losses if above thresholds or voluntarily to claim losses within 4 years.
- HMRC’s real-time CGT and 60-day reporting for property sales simplify reporting but have strict deadlines.
- Losses should be applied first against gains taxed at higher CGT rates to maximise savings.
- Regional differences (Scotland/Wales) mainly affect income tax bands that in turn influence CGT rates.
- Multiple income sources require careful aggregation to correctly apply CGT bands and allowances.
- Business owners can optimise CGT through timing disposals and using reliefs like BADR alongside losses.
- Always verify your tax code and consider Self Assessment registration if you have side income or complex gains.
- Keep good records, claim losses timely, and use HMRC online tools to avoid underpayments or excess tax.
FAQS
Q1: Can capital losses be carried forward indefinitely to offset future gains?
A1: Yes, it’s worth noting that if your capital losses exceed your gains in a tax year, the unused losses don’t vanish. Instead, you can carry them forward indefinitely to set against future gains. However, you must formally notify HMRC of these losses within four years of the tax year they arose by including them in your tax return or writing to HMRC. This ensures you don’t lose out on valuable tax relief.
Q2: Can capital losses be offset against income for tax purposes?
A2: Generally, capital losses can only be offset against capital gains, not regular income. There are rare exceptions, for example, losses on shares subscribed under the Seed Enterprise Investment Scheme where a claim can be made against income. In my experience, these scenarios are uncommon, so most taxpayers need to keep losses segregated and apply them strictly against gains.
Q3: How are capital losses applied if I have gains taxed at different CGT rates?
A3: HMRC allows you to be strategic here. Losses can be offset first against gains attracting the highest CGT rates—such as gains on residential property taxed at 28%—before applying to gains taxed at lower rates. This flexibility means you can minimise overall CGT by reducing your highest-rate gains first, a tip many business owners and investors find invaluable.
Q4: What happens if I dispose of an asset at a negligible value?
A4: If an asset becomes worthless, you may make a ‘negligible value claim’ to crystallise a capital loss, which can be backdated up to two tax years in some cases. This allows you to utilise losses even without selling the asset explicitly. I’ve advised small business owners on this, especially when inventory or shares substantially lose value without formal sale.
Q5: Can losses be claimed if the disposal was to a connected person?
A5: Losses from disposals to connected persons are “clogged losses” and have specific rules: they can only be offset against gains on disposals to the same connected person, in either the same or future years, provided the connection still exists. This restricts the flexibility of these losses, so it’s important to track these separately to avoid misapplication.
Q6: How do multiple income sources influence my capital gains tax rate?
A6: Your total taxable income plus capital gains determine the CGT rate applied. For example, if your employment income already places you in a higher tax bracket, your gains might be taxed at the higher 20% (or 28% for property). This is especially relevant for people juggling PAYE jobs, freelance income, and investments. So, a side gig or part-time job can push gains into a higher tax bracket unexpectedly.
Q7: Are there differences in offsetting losses for Scottish and Welsh taxpayers?
A7: Yes, while CGT itself doesn’t change, Scottish taxpayers have different income tax bands that influence which CGT rate applies since CGT rates depend on income tax thresholds. Welsh taxpayers follow UK-wide income tax bands, meaning CGT rates align with those in England. So, Scottish taxpayers can hit the higher CGT rate sooner, making loss offset strategies even more critical there.
Q8: Can losses from one tax year offset gains made in a different year?
A8: You cannot use losses from a future year to reduce current gains, but losses from prior years can be carried forward and offset against current year gains. Ensure you have claims for losses made in prior years recorded correctly with HMRC, or you might lose the ability to offset them when you need to.
Q9: What happens if I forget to report my capital losses to HMRC?
A9: It’s a common mix-up but with significant consequences. If you don’t report your losses within four years of the end of the relevant tax year, the claim becomes time-barred and you lose the ability to offset those losses against gains. From experience, I always advise clients to keep very organised records and ensure losses are claimed promptly.
Q10: How do capital losses interact with emergency tax codes or tax refunds?
A10: Emergency tax codes mainly affect income tax rather than CGT, but they can influence your overall tax position by distorting income tax bands. This, in turn, may push your gains into a different CGT rate bracket. Therefore, if you had emergency tax applied, double-check your tax returns as it could indirectly affect whether losses offset gains as you planned.
Disclaimer
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