Last updated: 16 October 2026
When could a trading loss be wasted?
Usually, a sole trader or partner with a trading loss sets it against other income in the same or previous year, or carries it forward against future profits of the same trade. But if you have little other income, the loss might only use up income already covered by your personal allowance. A lesser-known option is to set the loss against capital gains.
How the relief works
If you claim to set a trading loss against your general income for a tax year, and some of the loss is left over, you can make a further claim to set the remainder against your chargeable gains for the same year. This can turn a wasted loss into a real tax saving.
Main loss relief options
| Option | How it works |
| Sideways relief against income | Set against total income of the loss year, the previous year, or both |
| Against capital gains | The unused part of a sideways claim set against gains of the same year |
| Carry forward | Against future profits of the same trade |
| Early years losses | Losses in the first four years carried back against income of the previous three years |
| Terminal losses | Losses in the final 12 months carried back three years |
Sideways relief against other income is capped at the greater of £50,000 or 25% of adjusted total income.
Worked example
Sara starts a new business in 2025/26 and makes a trading loss of £30,000. She has £5,000 of other income and sells shares in 2025/26, making a gain of £40,000. She claims to set the loss against her general income first, which uses £5,000 (though it is covered by her personal allowance anyway). The remaining £25,000 is set against her gain, leaving £15,000. After the £3,000 annual exempt amount, £12,000 is taxable at 18%, giving CGT of £2,160. Without the claim, her CGT would have been £37,000 × 18%, or £6,660, so the claim saves £4,500.
Points to watch
- You must claim against income first in that year, even if it wastes your personal allowance.
- The loss reduces gains before the £3,000 annual exempt amount, so part of the exemption may be lost.
- Capital losses of the same year are set against gains first.
- The trade must be run on a commercial basis with a view to profit.
Is it the best use of the loss?
Carrying a loss forward may save more tax if you expect profits taxed at 40% in future. Early years loss relief can also give a refund of earlier years’ income tax. Compare the options before claiming.
Time limits
The claim must be made within one year of 31 January following the end of the tax year of the loss. For a 2025/26 loss, that is by 31 January 2028. It is usually made on your Self Assessment return.
Frequently asked questions
Can a company do this?
Companies use different rules, setting trading losses against total profits, which already include gains.
Can I use a rental loss against gains?
No. Rental losses can only be carried forward against future rental profits.
Does it work for partners?
Yes, each partner can claim for their share.
What rate of CGT applies?
18% within your basic rate band and 24% above it.
Related: offsetting trade losses against income, setting first-year losses against later profits and CGT rates explained.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with trading loss relief. See our accountants for sole traders service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
