Nobody wants to make a capital loss when they sell assets but sometimes it’s inevitable. How can you manipulate the resulting tax relief to make the most of a bad situation?
CGT rates increasing?
The rumour is that the rates of capital gains tax (CGT) may rise in this year’s Budget (26 November 2025). In fact, we hear this rumour every year. The suggestion is that they’ll be aligned or linked to the income tax rates you pay. This has been the case more than once in the history of the tax and so the change wouldn’t be a surprise as the government needs to increase revenue. Higher CGT rates will also affect the relief given for capital losses which makes loss planning important.
Timing is everything!
The saying that timing is everything is especially apt for capital losses. Timing determines what effect it has on your CGT bill, if any. To some extent if you can control when a capital loss arises you can affect the amount of tax relief you’ll get. There are three key rules for this that you should keep in mind:
- A capital loss first reduces capital gains of the same tax year.
- If capital losses exceed gains you made for the year, they are carried forward and must be used in the first later year to reduce gains more than your annual exempt amount.
- If any losses remain unused after 2. they are carried forward and used against gains in the next later year that you have gains exceeding your annual exemption.
The following examples show how the timing of a loss can affect the amount of tax payable.
Example- rule 1. Jaz is a higher rate taxpayer. In December 2024 he makes a capital gain from the sale of shares of £8,000. On 10 March 2025 he makes a capital loss of £5,000 from the sale of Bitcoin. These are the only capital gains transactions he makes in 2024/25. The loss reduces the gain to £3,000. As this is equal to the CGT annual exemption of £3,000 the loss has had no effect on Jaz’s tax bill.
Tip. If Jaz had sold the Bitcoin after 5 April 2025 the loss is not used to reduce the earlier gain because it’s in a different tax year. This means the loss is available to reduce gains and the CGT bill of that later year in which Jaz makes gains that exceed his annual exemption.
Example – rules 2 and 3. The circumstances are the same as for the previous example except Jaz sells his Bitcoin for a loss of £5,200 on 6 April 2025, i.e. in 2025/26. He makes no capital gains in that year but in 2026/27 he sells some shares for a gain of £2,000. This is less than the CGT annual exemption and so the £5,200 losses aren’t taken into account. In 2027/28 Jaz sells a residential property and makes a gain of £17,000. Assuming the current tax rates still apply, Jaz’s CGT bill for this would be £3,360 (£17,000 – £3,000 annual exemption = £14,000 x 24%). But as the gain exceeds the annual exemption of £3,000, the £5,200 loss from 2025/26 is deducted from the gain reducing it to £11,800. While deferring the sale of Bitcoin in 2025 meant Jaz lost an extra £200, it saved him £1,248 in tax.
Trap. Delaying or advancing a transaction to improve CGT relief is always a risk. It could work for or against you. Nevertheless, it’s worth considering if the loss would otherwise not save you any tax.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.