Usually, allowable capital losses can only be set against chargeable gains. If the losses are not fully utilised against gains in the year in which they arise, the excess is carried forward to use against future gains. See the Use of capital losses guidance note for further details.

This rule can be broken if the loss arises on certain shares. If the shares meet the conditions, the taxpayer can choose whether to set the losses against:

  • his chargeable gains, or
  • his income for:
    • that year
    • the previous year, or
    • both years

Given the lower rates of capital gains tax compared with the rates of income tax, it is more tax effective to set the losses against income if possible. Losses on any shares not meeting the conditions are treated as capital losses under the normal rules.

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