Utilising capital losses

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Utilising capital losses
  • Why capital losses are important
  • Identify special losses
  • Choosing how to offset losses
  • Action to take by 31 January following the tax year end

Why capital losses are important

Capital losses are usually set against the capital gains that arise in the same year as the loss, reducing the total taxable gains for that year. Losses not used in this fashion are normally carried forward to be set against the next available gains.

However, in certain circumstances, those losses may be blocked, restricted, carried back to earlier tax years or possibly treated as if they were income tax losses (see below).

Where the taxpayer is subject to more than one rate of capital gains tax (CGT) in a single tax year, he can choose which gains should be reduced by his capital losses so that his tax liability is reduced to the minimum possible.

If a taxpayer makes a claim to defer chargeable gains for an earlier year, the use of losses may be disturbed, which can have a knock-on effect for several tax years.

Capital losses must be quantified and claimed before they can be used. See the Use of capital losses guidance note for how capital losses arise and how they must be claimed.

Identify special losses

Where the taxpayer has made a capital loss, you first need to determine if the loss arises under one of the special circumstances that limit or expand the use of that loss, see below.

EIS, SEIS or SITR investments

Enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) are designed to encourage investment by individuals in unquoted trading companies. The social investment tax relief scheme (SITR) encourages investment by individuals in social enterprises, which may be unquoted companies, charities or other structures.

A gain accruing on a disposal of EIS, SEIS or SITR investments within three years of issue (or, for EIS shares, the company starting to trade) is a chargeable gain and

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