A Professional’s Guide to Capital Loss Carry Forward Rules (2026/27)

To utilise a capital loss, taxpayers must first ensure it qualifies as an “allowable loss” under the Taxation of Chargeable Gains Act 1992 (TCGA 1992). Section 16(2A) of TCGA 1992 mandates that a loss does not become allowable unless the taxpayer gives notice to HMRC quantifying the amount.

Practitioners must strictly adhere to the statutory time limits for this notification. Under section 43(1) of the Taxes Management Act 1970 (TMA 1970), individuals and companies have four years from the end of the tax year (or accounting period) in which the loss accrued to make the claim.  For example, a capital loss realised in the 2026/27 tax year must be claimed by 5 April 2031. Read this guide to explore Capital Loss Carry Forward Rules.

The 2026/27 Order of Deduction and the £3,000 AEA

For the 2026/27 tax year, section 1K(2) of TCGA 1992 sets the Annual Exempt Amount (AEA) for individuals at £3,000.  When applying losses, the legislation enforces a strict chronological order of deduction to protect the taxpayer’s AEA from being wasted by historic losses.

Under section 1K(4) of TCGA 1992, the deduction of the AEA takes place after the deduction of allowable losses accruing in the current tax year, but before the deduction of any allowable losses brought forward from previous years.

“The deduction of the annual exempt amount— (a) is made after the deduction of allowable losses accruing in the tax year, but (b) is made before the deduction of allowable losses accruing in a previous tax year…”

Crucially, if the current year’s net gains (after in-year losses) exceed the £3,000 AEA, the taxpayer uses brought-forward losses only to the extent necessary to reduce the net gains down to the AEA level.  The taxpayer cannot use brought-forward losses to reduce the gain below the £3,000 AEA threshold; any excess brought-forward losses are preserved and carried forward to future years.

Table: Order of Set-Off (2026/27)

Optimising Relief: Capital Loss Carry Forward Rules – The “Most Beneficial Way” Rule

For the 2026/27 tax year, the government has unified the main Capital Gains Tax rates at 18% for the basic rate band and 24% for the higher rate band across all assets (excluding carried interest).

When carrying forward and applying losses, section 1F of TCGA 1992 grants taxpayers the flexibility to deduct allowable losses from gains in whichever way is most beneficial to them.  In practice, this allows practitioners to strategically allocate carried-forward losses against gains that would otherwise suffer the 24% higher rate, preserving the 18% basic rate gains or gains qualifying for the 14% Business Asset Disposal Relief (BADR).

Restrictions on Carry Forward

In the Capital Loss Carry Forward Rules, while losses generally carry forward indefinitely, specific statutory restrictions apply to certain types of taxpayers and transactions:

• Corporate Capital Loss Restriction (CCLR): Companies face a restriction on how much carried-forward capital loss they can utilise in a single accounting period. Since 1 April 2020, Part 7ZA of the Corporation Tax Act 2010 (CTA 2010) restricts a company to offsetting a maximum of 50% of its relevant capital profits using carried-forward capital losses, subject to a £5 million group-level deductions allowance.
• Clogged Losses (Connected Persons): If a loss arises on a disposal to a connected person, section 18(3) of TCGA 1992 treats it as a “clogged loss”.  The taxpayer can carry this loss forward, but they can only set it off against future chargeable gains arising on a subsequent disposal to the exact same connected person.
• Death of a Taxpayer: While capital losses generally carry forward, the rule reverses upon death. Under section 62(2) of TCGA 1992, allowable losses sustained in the year of death that cannot be utilised in that year are carried back and deducted from chargeable gains in the three years of assessment preceding the year of death, taking the latest year first.

Consider researching the specific interactions between carried-forward capital losses and the new transition rules for furnished holiday lettings (FHL) properties rolled into the standard property business regime for 2026/27.