Step 1: Calculate the loss 

A capital loss may arise on the disposal of a chargeable asset. Capital losses are calculated in the same way as for capital gains. A basic computation is as follows: 

However, there are a number of potential complications, including that market value must be used instead of actual proceeds received where: 

• the transaction is for less than market value (eg, a gift); or 
• the disposal is to a connected person, in which case the computation must use market value rather than actual proceeds.  

HMRC’s guidance on connected persons at CG14580 explains who is and is not a connected person, and includes a link to a helpful flowchart. 

An individual may make a claim to realise a capital loss where they still own an asset but it has become of negligible value. This is most likely to be relevant where shares are held in a company that has gone into insolvent liquidation. Several conditions apply, including that there must have been a permanent reduction in the asset’s value, to the effect that it is now worthless, during the period of ownership. 

There may be some flexibility on the tax year in which a negligible value claim is made, bearing in mind that there is an actual disposal on the date the company is dissolved (or struck-off) at Companies House, and so that is the latest possible disposal date. 

HMRC’s guidance explains how to make a negligible value claim and includes a list of shares and securities in companies that it accepts have become of negligible value.  

Step 2: Give notice of the loss 

When a capital loss is realised, the taxpayer has four years from the end of the tax year of disposal to claim the loss. This can be done by notifying HMRC of the loss and providing a computation, either: 

• in the ITSA return for the year the loss was realised; or
• by writing to HMRC if they don’t complete a tax return. 

Step 3: Claim relief for the loss 

The general rule is that capital losses must be set against capital gains arising in the same tax year, even if that means that the CGT annual exempt amount (AEA) is wasted. Any unrelieved capital losses are then carried forward to future years, reducing the amount of capital gains in later years down to an amount equal to the AEA. 

However, exceptions are made to the general rule in some circumstances, including where the loss arose on the disposal to a connected person (ie, it is a “clogged loss”). Clogged losses are offset against capital gains arising on disposals to the same connected person in the same tax year, or in later years. The transferor and transferee must also still be connected at the time of the disposal that gives rise to the capital gain. 

In some limited circumstances, a capital loss on the disposal of shares may be relieved against the person’s income of the current and/or previous tax year. This includes disposals of shares which the person subscribed for, rather than purchased, where:  

• they claimed income tax relief under the Enterprise Investment Scheme when they subscribed for the shares; or
• the shares are in a “qualifying trading company”. Capital losses on shares issued under the Seed Enterprise Investment Scheme may qualify for relief under this category.  

HMRC’s guidance sets out the conditions that must be met for a claim to be made and explains how to make a claim for relief in the tax return, including where the loss is offset against the income of the previous tax year.  

If an individual makes a capital loss in the part of the tax year before their death, the capital loss must be set against capital gains arising in that period, even if the AEA is wasted. Any unrelieved capital losses are carried back and set against capital gains arising in the three previous tax years, later years first. The AEA is preserved, as for carried forward losses. For further information, see CG30430.