The UK Rules
Tax Losses

Capital Gains Tax If You Make a Loss

This section explains what happens if you make a tax loss on a chargeable asset. Find out how to report Capital Gains Tax 'allowable losses' to HM Revenue and Customs.

CGT LOSSES: The purpose of using 'allowable losses' is to reduce a gain.

How to Reduce Capital Gains Tax

To further lower your total taxable gains amount that is payable to HMRC, you can report losses on chargeable asset(s).

As a rule, the loss you report is the amount that gets deducted from the gains you made in the tax returns for a given year.

You might go above your tax-free allowances after totaling your taxable gain. If so, you can deduct any 'unused' losses from previous tax years.

The current year loss, plus any remaining losses from previous years, may reduce the gains below the annual exempt amount. In this case, you can carry forward any excess losses to future tax years.

Reporting CGT Losses to HMRC

As a rule, Capital Gains Tax losses are 'claimed' on your tax return. Write to HM Revenue and Customs if you are not registered for Self Assessment. Thus, the same applies if this is the first time you made a profit (realise a gain).

What happens when you dispose of an asset at a loss? You have up to four (4) years after the end of that tax year to declare it on your Self Assessment.

Note: There is an exception to the rules for CGT losses when made before the 5th of April 1996. They are still claimable. But, only after claiming all current, eligible, losses.

Loss on Disposal of Assets (family and others)

Husband, Wife or Civil Partner

Assets that you give or sell to your spouse (or civil partner) are not usually liable for Capital Gains Tax. But, within the same rule, you cannot claim for Capital Gains Tax losses against these assets.

Family Members

Likewise, you cannot deduct CGT losses from gifts, selling or 'disposing of' assets to a family member. The exception to this rule is if you are offsetting the loss against a gain to the same person. The same rules also apply to 'connected people'.

Connected People

This does not refer to your Godfather, or his 'associates', who make you an offer you cannot refuse. Connected people get defined by HM Revenue and Customs as a list of people which may include:

Claiming Asset Depreciation

Depreciation refers to situations where you are claiming for an asset that has lost its value. Thus, you can claim a Capital Gains tax loss if an asset, that you still own, becomes worthless or of 'negligible value'. You should refer to HM Revenue and Customs for the special rules on making negligible value claim.

Special Rules for CGT Losses

HMRC has further guidance on the special rules for these CGT losses:

CGT Record Keeping

You must collect all Capital Gains Tax records to help you calculate your gains or losses. You also need them for filling in your Self Assessment form. You must keep CGT records for at least one (1) year after Self Assessment deadlines. Online and paper submissions have different deadlines.

HM Revenue and Customs (HMRC) can check your tax return. They will inform you if this process already started. If so, you must keep your CGT records for longer than the usual period. The same rules for CGT record keeping apply if you sent in your Self Assessment return late.

Note: Businesses must keep Capital Gains Tax records for a minimum of 5 years after the Self Assessment deadline.

CGT Records You Need to Keep

The kind of Capital Gains Tax records that you need to keep include invoices, bills, and receipts that have the monetary amount and date showing:

You should also keep contracts and any documents used when selling or buying an asset. These can include asset valuations and contracts from stockbrokers or solicitors.

What Happens if You Do Not Have CGT Records?

If you cannot replace CGT records, such as if they got destroyed, stolen or lost, you must try to recreate them. That means using recreated records to complete your Self Assessment return. In this case, you must be able to show where the figures are different between:

CGT Market Value Rule

As a rule, the amount that you sold an asset for - minus what you paid for it - is your profit or realized gain. Yet, there are some circumstances where you use the market value as a substitute.

How to Check the Market Value

HMRC will be able to help you calculate the market value when you complete your tax return. You should fill in a 'Post-transaction valuation check form CG34' after you have sold or disposed of an asset.

Return CG34 form to the address provided on the document. Allow at least two (2) months for HM Revenue and Customs to respond.

UK Capital Gains Tax Loss, CGT Record Keeping and Market Value Rule