The CGT annual exemption operates in a similar fashion to the personal allowance for income tax: gains covered by the exemption are not taxed, but any unused exemption cannot be carried forward to be used in another tax year.
In the Autumn Statement Chancellor Jeremy Hunt cut the CGT annual exemption from £12,300 to £6,000 with effect from 6 April 2023, and announced another reduction to £3,000 to take effect from 6 April 2024.
Plans to sell
Where a taxpayer is planning to sell a property or a business this year, they need to factor in this reduction in the annual exemption. A delay in the exchange of contracts to beyond 5 April 2023, on say the sale of a residential property, could cost the seller an extra £1,764 in CGT.
It is the contract exchange date which fixes the timing of the sale for CGT purposes, although the property gains must be reported within 60 days of the completion date for the deal, which is usually some months later.
Root out losses
Taxpayers should be advised to review any capital losses they may have made in the past or current tax years. Where there have been no capital gains in the intervening period to use up the capital loss it is automatically carried forward to be used against gains in a future year.
To be eligible to be carried forward a capital loss must be claimed within four years of the end of the tax year in which it arose, so by 5 April 2023 for losses that arose in 2018/19.
Some categories of capital losses can be used more flexibly, for example against income for the current or pervious tax year. This applies to losses from seed enterprise investment scheme (SEIS) and enterprise investment scheme (EIS) shares, as well as shares in certain unquoted trading companies that qualify for share loss relief (ITA 2007, Pt 4, Ch 6).
Realising the loss
A capital loss is normally only realised when the asset is sold or destroyed. When a company is dissolved and the shareholders do not receive back the value subscribed, a capital loss will crystallise to the extent of the value lost on those shares.
Some taxpayers may have potential (not yet realised) capital losses from holding cryptoassets, following the crypto market crash in November 2022. Others may be holding shares or other securities which now have little or no value.
In either of these situations the taxpayer may wish to make a negligible value claim, if the shares or cryptoassets are still in existence.
This claim will create a capital loss, but the timing of such a claim could be important.
Timing is crucial
Where the negligible value claim is made in 2022/23 the capital loss will be set against capital gains arising in the same tax year before the deduction of the annual exemption. If there are no capital gains arising in 2022/23 or there are surplus losses after any gains have been covered by losses, those surplus losses carried forward to 2023/24.
Any capital losses which are brought forward are off-set against gains after deduction of the annual exemption, so the annual exemption for that year is not wasted. In view of the shrinking annual exemption it may be useful to have a brought forward loss in the bag to off-set against future gains.
Remember that to claim negligible value the asset must still exist at the time the claim is made, and the asset must have become of negligible value while it has been held by the taxpayer. If the asset had no value when it was acquired the negligible value claim will fail.
Check the list
HMRC regularly updates a list of quoted shares and securities which it agrees have negligible value. HMRC will generally accept negligible value claims for any shares or securities on this list.
Where the taxpayer is holding worthless unquoted shares they may need to provide evidence to HMRC that the shares are of negligible value. Rather than wait for HMRC to query the claim, the taxpayer should use form CG34 to request agreement to the share value from HMRC.
FAQs
Yes, You can carry forward any unused losses for CGT. Only losses that occur in the same year must be utilised first before using any of the annual exempt amount. If you then don't use all of the losses, these can then be carried into later years.
Can you offset capital gains losses in future years? ›
A capital loss can be offset against capital gains of the same tax year, but cannot be carried back against gains of earlier years. If you have an unused capital loss, this can be carried forward indefinitely against gains of future years.
Can capital losses be used in future years? ›
When an individual or business incurs capital losses that exceed their capital gains in a given tax year, the excess losses can be carried forward to future years. This allows taxpayers to utilize the losses in subsequent years, reducing their taxable income and potentially lowering their overall tax liability.
Can I use capital losses to offset future capital gains? ›
Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.
Can CGT losses be carried forward indefinitely? ›
Capital losses of previous tax years which are unutilised may be carried forward indefinitely for offset against subsequent tax year capital gains (subject to possible limit).
How many years can you carry forward capital losses? ›
You can report current year net losses up to $3,000 — or $1,500 if married filing separately. Carry over net losses of more than $3,000 to next year's return. You can carry over capital losses indefinitely.
How many years can you set off capital gain loss? ›
Fortunately, if you are not able to set off your entire capital loss in the same year, both short-term and long-term loss can be carried forward for 8 assessment years immediately following the assessment year in which the loss was first computed.
How far back can you use capital losses? ›
You can use a net capital loss to reduce your taxable capital gain in any of the three preceding years or in any future year. You can apply your net capital losses of other years to your taxable capital gains in 2023. Your available losses are shown on your notice of assessment or reassessment for 2022.
How to carry forward long-term capital loss? ›
If not fully adjusted in the financial year in which losses were incurred, capital losses can be carried forward to the next 8 assessment years. Long-term capital losses can only be adjusted against income from the LTCG. i.e., Long term capital gains.
Why is capital loss limited to $3,000? ›
The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated.
Essentially tax loss harvesting is when you purposefully sell assets at a loss. In turn, the losses from those investments' gains let you offset your gains elsewhere in your investment portfolio and if you have enough losses, reduce your ordinary income, and in turn, potentially your tax bill.
Can you write off 100% of stock losses? ›
If you own a stock where the company has declared bankruptcy and the stock has become worthless, you can generally deduct the full amount of your loss on that stock — up to annual IRS limits with the ability to carry excess losses forward to future years.
What losses can be carried forward indefinitely? ›
Non-capital losses unused after the carry-forward period expire, and are simply lost. Any unused ABIL after the carry-forward period becomes a net capital loss, which can be carried forward indefinitely to be offset against capital gains.
Can capital losses from sale of shares be offset against property gains? ›
Any short-term capital loss from the sale of equity shares can be offset against short-term or long-term capital gain from any capital asset. If the loss is not set off entirely, it can be carried forward for eight years and adjusted against any short term or long-term capital gains made during these eight years.
Can you offset capital gains with trading losses? ›
Set loss off against capital gains
However, you must offset the loss against any other income in the tax year first (before setting it off against capital gains). So, you can only set a self-employment loss against a capital gain to the extent the amount of the loss exceeds the other income in the tax year.
How much capital gains loss can you write off each year? ›
You can use capital losses to offset capital gains during a tax year, allowing you to remove some income from your tax return. You can use a capital loss to offset ordinary income up to $3,000 per year If you don't have capital gains to offset the loss.
Can losses be carried forward? ›
Different types of loss can be carried over for different number of years. For example, net operating loss can be carried forward for 20 years (to a year which has profit). Most states also have their own rules regulating the available period for carryover. Only realized loss (26 USC §1001(b)) can be carried forward.
Can long term capital gain be set off against brought forward business loss? ›
Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gain. Losses from a specified business will be set off only against profit of specified businesses.
