Capital losses (2024)

Overview

When you dispose of an asset to someone who is not connected to you, and you make a loss, assuming the transaction was at arm’s length (in other words there was no element of gift), you may be able to use the loss to reduce your gains that are chargeable to tax.

You must first set any loss against any other capital gains made in the same tax year. This is the case even if the gains are covered by your annual exemption (this means you may waste your annual exempt amount).

If, after doing this, you still have losses remaining, you should let HMRC know so that you can carry them forward and use them in a later year. We discuss how to do this in our page Capital gains tax reporting. You cannot carry losses back to a previous tax year, except where assets have been disposed of by a taxpayer in the part of a tax year before death. See HMRC’s capital gains manual CG30430 for the carry back of losses when someone has died.

Losses made from the sale of capital assets are not allowed to be offset against income, other than in very specific circ*mstances (broadly if you have disposed of qualifying trading company shares).

You cannot claim a loss made on the disposal of an asset that is exempt from capital gains tax (CGT). We cover separately the situation if you are disposing of a property which has at some point been your only or main home.

Example – capital loss to carry forward

Eileen bought some shares in August 2002 for £22,000. In August 2024, she sold them for £5,000.

Eileen has made a loss of £17,000, which she must use against any capital gains she makes in the same tax year, 2024/25. If she has no gains (or not enough gains), she can carry the loss (or balance of any unused loss) forward against any capital gains she makes in future years.

Note that if you dispose of an asset by gift or at less than its market value to a connected party, such as a close relative (our page on gifts explains further), or to an unconnected party other than by way of an arm’s length transaction, relief for the loss that arises is restricted. HMRC’s capital gains manual CG14561 explains further.

Assets that are lost or destroyed

If you have a capital asset that is lost or destroyed, you treat this as a disposal.

If you receive compensation, the amount of compensation you receive is treated as the sales proceeds.

If you do not receive any compensation, your sale proceeds are effectively nil. In this case, you may be able to claim relief for a loss.

Shares of negligible value

Sometimes shares you own may lose all or most of their value. This can happen when the company involved either just stops trading or goes into liquidation or receivership.

If you own shares that are now of no value and therefore worthless, or almost worthless, you might be able to make a ‘negligible value claim’.

When you make a negligible value claim, if all the conditions are met, you are treated as if you sold the shares and then bought them back again at their negligible value (thereby creating a loss) on the earliest of the following dates:

  1. The date that HMRC receive the claim.
  2. A date you specify on the claim, that may be in either of the two previous tax years, if the shares became worthless or almost worthless at that time or earlier. This allows you to treat the loss as arising in a different tax year – this may be important if you have large gains in one of the two years as it could help you minimise any CGT bill.

You then work out your capital loss as if you sold the shares for their negligible value on that date.

HMRC publish a list of companies whose shares they consider have become worthless.

If the shares that have become worthless are not in a company quoted on the stock exchange, but in a private company, for example, a family trading company, you may be able to set off your loss against income of the same tax year in which the loss is made or the previous one. For more detailed information have a look at HMRC helpsheet 286.

If you do not normally complete a tax return, you shouldwrite to HMRCto claim any capital losses or you may lose them. In these circ*mstances you normally have four years from the end of the tax year when you want to make the claim to actually make the claim for losses. Therefore, a claim for a loss arising in the tax year which ended on 5 April 2024 would have to be made by 5 April 2028.

Capital losses (2024)

FAQs

What are considered capital losses? ›

A capital loss is a loss on the sale of a capital asset such as a stock, bond, mutual fund or real estate and can typically be used to offset other capital gains or other income.

Why are my capital losses 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. The $3,000 loss limit rule can be found in IRC Section 1211(b). For investors with more than $3,000 in capital losses, the remaining amount can't be used toward the current tax year.

Is it worth claiming capital losses? ›

You almost certainly pay a higher tax rate on ordinary income than on long-term capital gains so it makes more sense to deduct those losses against it. It's also beneficial to deduct them against short-term gains which have a much higher tax rate than long-term capital gains.

How much capital gain loss can I deduct? ›

What happens if your losses exceed your gains? The IRS will let you deduct up to $3,000 of capital losses (or up to $1,500 if you and your spouse are filing separate tax returns). If you have any leftover losses, you can carry the amount forward and claim it on a future tax return.

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.

How many years can you carryover capital losses? ›

In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out. Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.

Can capital losses offset ordinary income? ›

Capital losses can indeed offset ordinary income, providing a potential tax advantage for investors. The Internal Revenue Service (IRS) allows investors to use capital losses to offset up to $3,000 in ordinary income per year.

What kind of losses are tax deductible? ›

Casualty and theft losses are deductible losses that arise from the destruction or loss of a taxpayer's personal property. To be deductible, casualty losses must result from a sudden and unforeseen event. Theft losses generally require proof that the property was actually stolen and not just lost or missing.

What are the types of capital losses in income tax? ›

There are three types of capital losses, namely realised losses, unrealised losses, and recognisable losses. Further, capital losses are sub-categorised based on the holding period of the investment – short-term losses (investment period less than one year), long-term losses (investment period is more than a year).

Do capital losses offset personal income? ›

Capital losses can indeed offset ordinary income, providing a potential tax advantage for investors. The Internal Revenue Service (IRS) allows investors to use capital losses to offset up to $3,000 in ordinary income per year.

Can you write off capital losses if you don't itemize? ›

“The simple answer to your question is yes, you can deduct capital losses even if you take the standard deduction.”

References

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