Property prices do not always go up. If you sell a rental property, second home, or inherited property at a price below what you paid for it (taking into account all allowable costs), you make a capital loss. That loss is a usable tax asset — but only if you know the rules.
What counts as a capital loss on property?
A capital loss arises when your disposal proceeds are less than your base cost. The base cost includes:
- The original purchase price (or probate value for inherited property)
- Stamp Duty Land Tax on purchase
- Solicitor and surveyor fees on purchase
- Capital improvement costs (extensions, conversions, structural works — not repairs)
- Costs of the sale itself (estate agent fees, solicitor fees)
If the total of these deductible costs exceeds the sale proceeds, you have an allowable capital loss.
Does the loss get offset against my income?
No. Capital losses can only be set against capital gains — they cannot be set against your income tax bill. This is a common misunderstanding. If you sell a rental property at a £20,000 loss, that £20,000 does not reduce your employment income or rental income. It can only be used against future (or same-year) capital gains on shares, other property, cryptocurrency, or any other chargeable asset.
Same-year offset: using the loss immediately
If you have other capital gains in the same tax year — for example, if you also sold shares or another property at a gain — the property loss is automatically set against those gains first, before the Annual Exempt Amount is applied. You cannot choose to skip using current-year losses.
This can sometimes have an unexpected effect. If you have a £3,000 gain on shares that would otherwise be covered by the Annual Exempt Amount, and a £5,000 loss on a property in the same year, the loss is first applied to the £3,000 gain (wiping it out) and the remaining £2,000 carries forward. The Annual Exempt Amount does not "save" you from having to use the loss.
Carrying the loss forward
If you have no gains to offset in the year of the loss, it carries forward indefinitely. There is no time limit. A loss made in 2010 can still be used in 2030 — provided it was reported to HMRC at the time it arose.
When using a carry-forward loss in a later year, you are only required to use it to the extent that it brings your net gains down to the Annual Exempt Amount (£3,000 for 2025/26). Any unused balance continues to carry forward.
You must report the loss to HMRC
This is where many people lose out. A capital loss does not automatically register with HMRC. You must tell HMRC about the loss within four years of the end of the tax year in which it arose.
If you are in Self Assessment, you report capital losses on the capital gains pages (SA108) of your return. If you are not in Self Assessment, you write to HMRC within the four-year window.
Missing this deadline means the loss cannot be claimed at all, even if it would have reduced your tax in a future year.
Do you need to file a 60-day return for a loss?
If you sell a UK residential property at a loss and are a UK resident, you do not need to file a 60-day CGT return — because there is no tax to pay. However, the loss still needs to be reported through Self Assessment (or a standalone letter to HMRC) to be registered and usable.
Non-UK residents are different: they must file a 60-day return for UK residential property regardless of whether a gain or loss arises.
Losses on your main home
If the property you sold at a loss was your only or main residence throughout ownership, Private Residence Relief applies — but this also means the loss is not an allowable capital loss. A loss that arises on an exempt asset cannot be used to reduce gains on other assets. Only losses on properties that were subject to CGT (second homes, rental properties, inherited properties not used as your main home) generate allowable capital losses.
Practical steps if you have made a property loss
- Calculate the full loss, including all allowable costs
- Report it to HMRC in your Self Assessment return (or by letter if not in SA)
- Keep documentation — purchase and sale completion statements, improvement invoices
- Review whether you have current-year or future gains that the loss can shelter
If you have sold a property at a loss and also have other disposals in the same year or coming up, a Chartered Accountant/Chartered Tax Advisor can make sure the loss is optimally used and correctly reported.