What losses can you offset against your share/option/CFD/forex gains?
If you’re investing in shares, options, CFDs or forex you’ll no doubt be aware by now that you’re subject to capital gains tax on the profits.
A common question we’re asked is how these capital gains can be reduced by losses. We’ve therefore highlighted below the extent to which you can offset any losses against your capital gains.
Capital Losses
Yes, you can offset the losses on other disposals against your capital gains.
The general rule is that they’ll be offset first in the current year, then be carried forward against other capital gains in future tax years. Note that there is a difference in how the losses are offset. In the current year they are offset in full (assuming losses are less than the gains). If losses are brought forward from a previous year they’ll only be offset to bring any capital gains down to the annual CGT exemption.
In the UK the following tax rates are currently applicable:
1. Capital Gains Tax Rates:
- As of 30 October 2024, the main CGT rates have increased:
- Basic rate taxpayers: from 10% to 18%
- Higher rate taxpayers: from 20% to 24%
- Rates for residential property disposals remain at 18% and 24% for basic and higher rate taxpayers, respectively.
2. Annual CGT Exemption:
- For the 2024 to 2025 tax year, the CGT annual exemption has been reduced to £3,000
Tax Planning: With increased CGT rates and a reduced annual exemption, effective tax planning becomes more crucial to minimize liabilities.
Losses on Rental Properties
No, these losses can’t be offset against your capital gains
Trading Losses
Losses on any trading activity (financial or non-financial trade) would generally be offset against other income of the same year or carried back up to 1 year (extended to three years for most of 2009).
However, a person who incurs a trading loss and claims relief under the general income tax provisions (ie against other income) but who does not have enough income to offset that loss in full, can make a claim to have the excess treated as a capital loss. This will then be offset against the capital gains in the year.
So trading losses can be offset against gains but to the extent that there is no other income and if a claim is made.
Note that new provisions mean that if the trade is a ‘non active’ trade your loss relief would be limited to £25,000 per year (ie you could only offset £25,000 of the trading loss against any trading profits & the capital gain).
You’ll be classed as carrying out a trade in a non-active capacity if you don’t spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried on:
- on a commercial basis and
- with a view to the realisation of profits as a result of those activities.
Losses on Overseas Property
No, there would be no relief for these losses against capital gains.
Interest
No, you won’t get a deduction for interest if you’re an investor (aside from the finance interest that is debited to a CFD holders account). Note that if you carry out your investing via a company you’ll be entitled to much wider offset of losses.
For personalized advice, it’s recommended to consult with a tax professional or accountant.
