What are capital losses?
A capital loss arises when a property sells for less than its allowable cost. Losses are set against gains in the same tax year first, and unused losses can be carried forward to later years if they are reported to HMRC, usually within four years.
Read more in our guide: Capital Gains Tax when selling rental property
Key facts at a glance
| Item | Detail |
|---|---|
| Deadline to claim a loss | 4 years from the end of the tax year in which it arose |
| How long it can be carried forward | Indefinitely, once claimed |
| Order of use | Same-year losses against same-year gains first, in full; then losses brought forward |
| Brought-forward losses | Only used to reduce gains down to the annual exempt amount, so the allowance is not wasted |
| Set against income? | Not for property losses |
| Losses with connected persons | Only usable against gains on disposals to the same person |
How Capital Losses Work
A capital loss arises when you sell a property for less than its allowable cost: the purchase price plus buying costs, capital improvements and selling costs. Losses have become more common among landlords who bought flats at the peak in some city-centre markets, leasehold flats with cladding or service-charge problems, and properties bought with high purchase costs.
No Capital Gains Tax is payable on a loss, and the loss can reduce the tax on other gains, but only if HMRC is told about it.
The Rules on Using a Loss
- Same tax year. Losses are set against gains made in the same tax year first, in full, even where this reduces the gains below the annual exempt amount.
- Carry forward. Unused losses are carried forward to later years. In later years they are only used to the extent needed to bring your gains down to the annual exempt amount.
- Claim in time. You must report the loss within four years of the end of the tax year in which you made it, on your Self Assessment return or by writing to HMRC.
- No carry back. Losses generally cannot be carried back to earlier years, except in the tax year of death.
- Connected persons. A loss on a sale to a family member or a company you control can only be used against gains on other disposals to that same person.
A Worked Example in a Portfolio Sale
A landlord sells three properties to one buyer in 2026 to 2027:
| Property | Gain or loss |
|---|---|
| Terraced house, bought 2006 | £85,000 gain |
| Semi-detached house, bought 2011 | £47,000 gain |
| City-centre flat, bought 2007 | £18,000 loss |
| Net gain | £114,000 |
After the £3,000 allowance, £111,000 is taxable. At 24%, the loss on the flat has saved £4,320. Had the flat been sold in a later tax year, the loss would only have been usable against gains in that later year.
Why Losses Matter When Planning a Sale
- Including a loss-making property in the same tax year as the profitable ones can reduce the overall bill, which can be a reason to sell a whole portfolio together.
- Losses from earlier years, such as on shares or a previous property, can be used if they were claimed in time. Ask your accountant to check old returns.
- Where one price is paid for several properties, a reasonable split of the price matters, because it decides where gains and losses fall.
- Losses made inside a limited company stay in the company and cannot be used against your personal gains.
- If CGT has already been paid through a 60-day report and a later sale in the same year makes a loss, the overpayment is usually recovered through Self Assessment.
Official Sources and Further Reading
General information for landlords in England, checked against official sources in October 2026. It is not tax, legal or financial advice: speak to a qualified accountant or solicitor about your own circumstances.
Frequently Asked Questions
A capital loss arises when a property sells for less than its allowable cost. Losses are set against gains in the same tax year first, and unused losses can be carried forward to later years if they are reported to HMRC, usually within four years.
You must report a capital loss to HMRC within four years of the end of the tax year in which you made it.
Yes. Once claimed, a capital loss can be carried forward indefinitely and set against future gains, but only to bring them down to the annual exempt amount.
No. A capital loss on a property can only be set against capital gains, not against rental or other income.
Only against gains on other disposals to the same connected person. This rule stops losses being created by sales within a family.
Thinking About Selling Your Portfolio?
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