If your limited company sells a capital asset for less than what it originally cost, the loss is not wasted. You can use it to reduce your corporation tax bill by offsetting it against other chargeable gains. This is called corporation tax capital loss relief.

It is a straightforward principle. But the rules around what qualifies, how you claim it, and what you cannot offset are specific. Get them wrong and you could miss out on relief or trigger an HMRC enquiry.

Here is how it works for UK limited companies, with the practical detail you need to apply it correctly.

What Counts as a Capital Loss for Corporation Tax Purposes

A capital loss arises when your company sells, gives away, or disposes of a capital asset for less than its base cost. The base cost is typically what you paid for it, plus any allowable costs of acquisition and enhancement.

Common examples include:

  • Selling a commercial property for less than you paid for it
  • Disposing of shares in another company at a loss
  • Selling goodwill or intellectual property for less than its cost
  • Disposing of plant and machinery that has fallen in value (though capital allowances often deal with this differently)

Capital losses are distinct from trading losses. A trading loss comes from your day-to-day business activities. A capital loss comes from disposing of an asset you held for investment or use in the business, not for resale as stock.

How Corporation Tax Capital Loss Relief Works

You can offset a capital loss against chargeable gains in the same accounting period. If the loss exceeds the gains in that period, you can carry it forward to future periods and offset it against gains in those periods.

There is no time limit on carried-forward capital losses. You can hold them indefinitely until you have enough gains to absorb them.

Here is a worked example. Suppose your company makes a capital loss of £63,400 from selling a commercial property in the year ended 31 March 2026. In the same year, it makes a chargeable gain of £92,800 from selling shares in a subsidiary. The loss reduces the net gain to £29,400. Corporation tax on that gain, assuming the main 25% rate applies, would be £7,350 instead of £23,200.

If the loss were £120,000 and the gain only £92,800, the remaining £27,200 loss carries forward to future years.

Indexation Allowance No Longer Applies

Indexation allowance was frozen from January 2018 for companies. That means you cannot inflate the base cost of an asset for inflation after that date. If you bought an asset before January 2018 and sold it at a loss after that date, the calculation uses the original cost plus indexation up to December 2017 only.

This matters because it can turn what looks like a real-terms loss into a smaller capital loss, or even a gain for tax purposes.

What You Cannot Offset Capital Losses Against

This is where many directors get caught out. Capital losses have strict matching rules.

You cannot offset a capital loss against:

  • Trading profits (those are dealt with through trading loss relief)
  • Property income or other non-capital income
  • Dividends received from other companies

The loss must be matched against chargeable gains. If your company has no chargeable gains in the year of the loss or in future years, the capital loss sits unused. It never reduces your corporation tax on trading profits.

This is a critical distinction. If your company sells a rental property at a loss but has no other capital gains that year, the loss carries forward until you sell something else at a gain. It does not reduce your rental income or your trading profits.

Connected Persons and Capital Losses

HMRC restricts capital loss relief where the disposal is to a connected person. For companies, connected persons include directors, shareholders who control the company, and other group companies.

If you sell an asset to a connected person at an undervalue, the disposal is treated as taking place at market value. You cannot create an artificial loss by selling cheaply to a connected party.

More importantly, if you sell an asset to a connected person at a loss, you can only offset that loss against gains from disposals to the same connected person. This is a narrow restriction that rarely applies in practice, but it is worth knowing if you are restructuring within a group.

Degrouping Charges and Capital Losses

If your company leaves a group within six years of receiving an asset from another group company, a degrouping charge can arise. This treats the asset as if it were sold at market value when it left the group, creating a chargeable gain.

Capital losses can offset degrouping charges, but the timing rules are specific. The loss must be available in the accounting period when the degrouping charge arises. If you are planning a group restructuring, check the degrouping rules before you proceed.

Shares and Capital Losses: Special Rules

Shares are the most common source of capital losses for companies that have invested in other businesses. But the rules are more complex than for physical assets.

If your company subscribes for shares in an unlisted trading company and sells them at a loss, you may be able to claim relief under the Share Loss Relief rules (ITCCTA 2001, Schedule 7A). This allows the loss to be set against income rather than capital gains. It is a valuable relief but has strict conditions.

The company must be a trading company, not an investment company. Your company must have subscribed for the shares in cash. And your company must hold at least 5% of the ordinary share capital, or the shares must be in a qualifying trading company.

This is a specialist area. If your company has made a loss on shares in another business, check whether Share Loss Relief applies before defaulting to capital loss treatment.

How to Claim Capital Loss Relief on Your Corporation Tax Return

You claim capital loss relief on the CT600 corporation tax return. Specifically, you report chargeable gains and allowable losses in the capital gains computation that accompanies the return.

The key steps are:

  1. Calculate the gain or loss on each disposal using the appropriate computation
  2. Aggregate all gains and losses for the accounting period
  3. Enter the net gain or loss on the CT600
  4. If you are carrying forward losses from earlier periods, include them in the computation
  5. Keep detailed records of each disposal, including the date, cost, proceeds, and any allowable costs

You do not need to submit a separate claim form. The claim is made through the normal return process. But you must be able to demonstrate that the loss is genuine and properly computed. HMRC can ask for supporting evidence.

Record Keeping Requirements

You must keep records of capital disposals for at least six years after the end of the accounting period to which they relate. For carried-forward losses, you need to keep the records until the loss is fully used and the return for that later period is beyond enquiry.

For a company that holds assets for many years, this can mean keeping records for decades. We recommend maintaining a capital gains and losses register that tracks each asset from acquisition to disposal, with the computation clearly documented.

Capital Losses and Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) applies to individuals, not companies. But if your company sells an asset and distributes the proceeds to shareholders, the shareholders may claim BADR on their share disposal.

The company's capital loss position is separate. The company claims capital loss relief on its own return. The shareholders claim BADR on their personal returns. The two do not interact directly, but the overall tax position needs careful planning.

If your company holds assets that have fallen in value, selling them before a share disposal can reduce the company's capital gains position and potentially increase the amount distributable to shareholders. This is a structuring point worth discussing with your accountant before you sell.

Common Mistakes with Capital Loss Relief

Here are the errors we see most often when clients come to us after preparing their own returns.

Mistake 1: Offsetting capital losses against trading profits. This is the most common. A company sells a property at a loss and tries to reduce its corporation tax on trading profits. It does not work. The loss sits against gains only.

Mistake 2: Forgetting to carry forward losses. If you have a loss in year one and no gains, you must track it manually. HMRC does not automatically carry it forward. You need to include it in the computation in the year you use it.

Mistake 3: Using the wrong base cost. For assets acquired before 2018, indexation allowance up to December 2017 is still relevant. For assets acquired after that, no indexation applies. Getting this wrong overstates or understates the loss.

Mistake 4: Ignoring the connected persons rules. Selling an asset to a connected person at a loss triggers market value rules and restricts relief. Always check the counterparty before finalising the disposal.

When to Speak to an Accountant

Capital loss relief is not complicated for straightforward disposals. A single asset sold at a loss with no group or connected person issues is simple to handle.

But if any of these apply, you should take advice:

  • The asset is shares in another company
  • The disposal is to a connected person
  • Your company is part of a group
  • You have carried-forward losses from several years ago
  • You are restructuring the company or planning to sell the company itself

As ICAEW qualified accountants, we handle capital gains computations for companies across every sector. If your company has disposed of an asset at a loss and you want to make sure the relief is claimed correctly, get in touch.