US-UK · Journal
Capital Losses: Why the US and UK Count Them Differently
A loss that shelters tax in one country can be a taxable gain in the other. The offset rules, the currency mismatch, and how to harvest safely.
A loss that shelters tax in one country can be a taxable gain in the other. The offset rules, the currency mismatch, and how to harvest safely.
A capital loss is not a portable asset. A disposal that produces a deductible loss in the United States can produce a taxable gain in the United Kingdom — on the same shares, sold on the same day — because each country measures the result in its own currency, closes its tax year on a different date, and attaches its own conditions to using the loss at all. For anyone filing in both systems, loss planning optimised for one side routinely destroys value on the other.
The mechanics sit in IRS Topic no. 409 and the Schedule D instructions. Gains and losses are first sorted by holding period. A gain or loss is long-term where, as the IRS puts it, you hold the asset "for more than one year before you dispose of it"; one year or less is short-term, counted from the day after acquisition. Short-term items net against each other, long-term against each other, and the two results are then combined.
If the result is a net loss, the Schedule D instructions allow you to "deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately)." That $3,000 is the only route by which a capital loss reaches ordinary income. Everything above it carries forward — per Topic 409, "If your net capital loss is more than this limit, you can carry the loss forward to later years" — recomputed each year on the Capital Loss Carryover Worksheet, which keeps short-term and long-term character separate.
Two points matter cross-border. The carryover belongs to the person who sustained the loss: where spouses once filed jointly and now file separately, it "can be deducted only on the return of the spouse who actually had the loss." And individuals get no carry-back, bar the elective three-year carry-back for net section 1256 contracts losses under §1212(c).
IRC §1091 disallows a loss where you sell stock or securities at a loss and, as Publication 550 describes it, "within 30 days before or after the sale" you buy substantially identical stock or securities, acquire them in a fully taxable trade, acquire a contract or option to buy them, or acquire them for an IRA or Roth IRA. That is a 61-day window centred on the disposal, not 30 days forward.
The loss is deferred rather than destroyed: you "add the disallowed loss to the cost of the new stock or securities," and "your holding period for the new stock or securities includes the holding period of the stock or securities sold." Whether two holdings are substantially identical turns on the facts of each case.
Where stock, stock rights or bonds become completely worthless, Publication 550 treats them "as though they were sold on the last day of the tax year," which can push a holding acquired earlier that year into short-term territory. Securities abandoned after 12 March 2008 count too. If the loss was missed, the claim window is long: Form 1040-X filed "within 7 years from the date your original return for that year had to be filed," or two years from payment of the tax, whichever is later. Partial worthlessness does not work — until the security is worthless or sold, there is nothing to deduct.
The UK starts somewhere different: no ordinary-income offset at all, and a loss has to be claimed rather than simply reported.
This is the most expensive detail in UK loss planning. HMRC's worked examples at CG21520 set out the order: deduct the year's own losses from the year's gains; then the annual exempt amount; then brought-forward losses against whatever is left, using only as much as is needed.
Two outcomes fall out of that. Current-year losses come off before the allowance, so a year of large losses can waste it entirely — CG21520 says plainly that where losses exceed gains "the annual exempt amount is not utilised and may not be carried forward." Brought-forward losses are used only down to the allowance. That is why losses banked in an earlier year are worth more than losses realised in the same year as the gains they shelter. For 2026 to 2027 the annual exempt amount is £3,000 for individuals and £1,500 for most trustees, against CGT rates of 18% and 24%.
GOV.UK is unambiguous: "Claim for your loss by including it on your tax return," and "you can claim up to 4 years after the end of the tax year that you disposed of the asset." Someone who has never made a gain and is not registered for Self Assessment can write to HMRC instead. An unclaimed loss is not held in reserve — it expires.
That rule catches more Americans in the UK than any other here. US practice trains people to expect a carryover to appear from the brokerage statements; the UK expects a positive claim, on time, in the right box.
Claimed losses carry forward indefinitely but cannot be carried back, with one exception: under TCGA 1992 s.62(2), allowable losses sustained in the year of assessment in which an individual dies "may be deducted from chargeable gains accruing to the deceased in the 3 years of assessment preceding the year of assessment," taking later years before earlier ones.
Note also clogged losses: a loss on a disposal to a connected person can generally only be set against gains on disposals to that same person. CG21520's examples show such a loss as one that "cannot be off-set in the year and can only be carried forward".
Sell shares and buy the same class back quickly, and the UK matches the sale against the repurchase rather than your pooled cost. TCGA 1992 s.105 matches same-day acquisitions first; s.106A(5) then matches a disposal with securities acquired "within the period of thirty days after the disposal", earliest first. Only then does the disposal come out of the section 104 pool.
The differences from the US rule are the point.
The UK counterpart to the worthless securities deduction is more flexible. Under TCGA 1992 s.24, where you still own an asset that has become of negligible value — HMRC's view at CG13125 is that negligible means "worth next to nothing" — you may claim to be treated as having "sold, and immediately reacquired, the asset at the time of the claim", or at an earlier time.
Three conditions govern that earlier date: you owned the asset then, it had already become of negligible value then, and for capital gains tax "the earlier time is not more than two years before the beginning of the year of assessment in which the claim is made". The asset must also still exist when you claim, so a dissolved company leaves nothing to claim over — which is why timing matters against a liquidation.
| | United States | United Kingdom |
|---|---|---|
| Tax year | Calendar year | 6 April to 5 April |
| Against ordinary income | Up to $3,000 a year ($1,500 MFS) | None |
| Tax-free allowance | No equivalent | AEA (£3,000, 2026-27), deducted after current-year losses and before brought-forward losses |
| Must the loss be claimed? | No — reported on Form 8949 and Schedule D | Yes, generally within 4 years of the end of the tax year of disposal |
| Carry-forward | Yes, short-term and long-term character preserved | Yes, indefinitely, once claimed |
| Carry-back | No (except elective §1256) | No, except the year of death (3 years, s.62(2)) |
| Repurchase rule | Wash sale: 30 days before or after; loss disallowed, added to basis | Share identification: same day, then the 30 days after; loss recomputed against the repurchase |
| Scope of that rule | "Substantially identical stock or securities" | Securities of the same class |
| Worthless holdings | Sold on the last day of the tax year; 7-year refund window | Negligible value claim; deemed disposal at the claim date or up to 2 years earlier |
| Currency | US dollars, at the rate when each amount is paid or received | Pounds sterling, at the rate at acquisition and at disposal |
The UK year ends 5 April, the US year 31 December, so a disposal on 20 February 2027 falls in the UK 2026-27 year and the US 2027 year. Harvest a loss in March to shelter a UK gain made the previous June, and on the US side you have pushed it into the following year, where it may meet no gains at all.
This is where cross-border loss planning quietly fails, because each country computes in its own currency using historic rates. The IRS position is that your functional currency is generally the US dollar, that "you must express the amounts you report on your U.S. tax return in U.S. dollars", and that you should "use the exchange rate prevailing when you receive, pay, or accrue the item". HMRC's position at CG78310 is the mirror image: you may not compute the gain in the foreign currency and convert the answer, because "the measure of the consideration is the sterling worth, at the date of the acquisition or disposal". HMRC does not prescribe a reference point for the rate but expects a reasonable, consistent method.
Two translations, at two dates, in two currencies, on one transaction. The arithmetic does the rest.
Example A — a dollar loss that is a sterling gain. You buy US-listed shares for $100,000 when the rate is $1.50 to the pound: UK base cost £66,667. You sell for $90,000 at $1.20. The US sees a $10,000 capital loss; the UK sees proceeds of £75,000 against cost of £66,667, an £8,333 chargeable gain.
Example B — the reverse. You buy for $100,000 at $1.20 (base cost £83,333) and sell for $110,000 at $1.50 (proceeds £73,333). The US sees a $10,000 gain; the UK sees a £10,000 allowable loss.
Neither answer is an error. Sterling weakness turns dollar losses into sterling gains and strength does the opposite, and on long-held positions the currency movement frequently exceeds the asset movement.
Currency is not only a translation factor. It can be the asset.
On the UK side, CG78320 records that from 6 April 2012 foreign currency bank accounts held by individuals, trustees and personal representatives are treated as simple debts under TCGA 1992 s.252, and "such debts will not give rise to chargeable gains (or allowable losses) in the hands of the original creditor". Moving money between a dollar and a sterling account is therefore not a UK disposal — and generates no usable loss.
On the US side, IRC §988 treats currency gains and losses as ordinary rather than capital, and §988(e) carves personal transactions out: where an individual disposes of non-functional currency in a personal transaction, no gain is recognised by reason of exchange-rate movement unless the gain exceeds $200. The asymmetry is deliberate — it suppresses small gains and creates no matching loss deduction. Foreign-currency borrowings and non-personal positions sit outside the carve-out, and our guide to currency exchange gains and losses in cross-border tax covers them.
Harvesting still works, but it has to clear both sets of rules at once, and a trade that satisfies one can breach the other.
A US-compliant trade that fails in the UK. You sell at a loss on 1 March and wait 31 days before buying back, clearing the wash sale window. But the UK looks forward 30 days under s.106A(5), so a repurchase on day 29 or 30 satisfies nothing on the UK side.
A UK-compliant trade that fails in the US. Repurchase on day 31 after a UK disposal and the UK matching rules are satisfied. But if you also bought the same security within the 30 days before the sale — a dividend reinvestment, a savings contribution, a purchase inside an IRA — §1091 can still disallow the US loss, and you may not discover it until the 1099-B arrives.
Practical ways through:
UK property and investment disposals add further wrinkles — reporting deadlines, residential rates, non-resident rules — covered in our guides to capital gains tax on UK property and selling UK property as a US citizen.
1. Build one register of positions in both currencies, with acquisition dates, acquisition-date rates and current rates.
2. Identify the binding constraint. Is the expensive tax a UK gain at 18% or 24%, a US gain, or both? Harvest against the exposure that exists.
3. Decide which tax year you want the loss in. The UK 5 April and US 31 December boundaries are three months apart, and one disposal date settles both.
4. Prefer banking UK losses in a year before the gain, so they apply after the annual exempt amount rather than consuming it.
5. Claim UK losses in the return for the year of disposal. The four-year limit is real.
6. Diary the 30-day windows in both directions and freeze automatic purchases across every account for that period.
7. Review distressed holdings before each year end. A US worthless-security deduction lands on the last day of the US tax year; a UK negligible value claim can reach back two years, but only while the asset still exists.
8. Have both returns prepared together — that is how the currency and timing interactions get caught before filing, not after.
If you hold investments on one side of the Atlantic and file on both, the question is rarely "should I harvest this loss" and almost always "in which year, in which currency, and against what". It has to be modelled before the trade: neither the UK four-year claim limit nor the 30-day windows can be fixed afterwards.
We model both positions in both currencies, prepare the US and UK returns together, and flag where a disposal would give opposite answers in the two systems. Every US filing is reviewed and signed off by a licensed IRS Enrolled Agent who is also ACCA-qualified on the UK side; nothing is filed that a qualified professional has not signed. For a second pair of eyes before you trade, our US-UK tax specialists can help — book a consultation.
General information on the tax treatment of capital losses, current at the date of publication. Not investment advice. Treatment depends heavily on individual facts — residence and long-term residence status, treaty position, account type, and the dates and currencies involved — so take advice on your own circumstances before acting.