Crypto investors often only start thinking about tax once they have realised gains, and for many, that is the first time they think about the tax implications of their crypto activity. But understanding how to calculate and use capital losses can be just as important. If your crypto activity results in losses rather than gains, it is vital to quantify and report those losses within HMRC’s time limits, or you could lose valuable tax relief in the future when you do make gains.
In this guide we walk you through the basics of calculating losses, how they can be used, and the different rules depending on when they occur, and how to report them.
Contents
- 1. Calculating Capital Losses on Crypto
- 2. Offsetting Capital Losses
- 3. How to Report Losses
- Conclusion
1. Calculating Capital Losses on Crypto
Capital losses on crypto are worked out in the same way as gains. HMRC applies the share pooling rules to crypto, which means you group together all acquisitions of the same token into a single pool.
When you sell or dispose of crypto tokens, you match them in this order:
- Same-day rule - disposals matched against purchases of the same token made on the same day.
- 30-day rule - disposals matched against purchases of the same token made within 30 days after the sale.
- Section 104 pool - any disposals not matched under the previous two rules are taken from the Section 104 pool for that token.
Following this sequence ensures you calculate the correct cost basis for your disposal. The difference between the disposal proceeds and the allowable cost will be your gain or your loss. For more information, including examples of these rules in action, see our detailed guide to crypto share pooling.
2. Offsetting Capital Losses
Capital losses can reduce the amount of Capital Gains Tax (CGT) you pay, but how and when they are applied depends on whether they arise in the same tax year as your gains or in a later year.
2.1 Losses in the Same Year as Gains
If you have gains and losses in the same tax year, the losses are automatically offset against your gains before applying the CGT annual exemption. This can be helpful in reducing your tax bill, as discussed in our crypto tax planning strategies, but it can also mean you lose some or all of your annual exemption if your losses exceed your gains.
Here is a basic example of how losses can reduce your taxable gains when made in the same year:
You realise £20,000 in gains on BTC and £5,000 in losses on ETH in the same tax year. The losses are automatically applied to the gain resulting in a net gain of £15,000.
The annual exemption (£3,000 for 2025/26) is then applied, leaving £12,000 of taxable gains.
In the above example, the losses were fully utilised in the year they were made, and the annual allowance was preserved because gains exceeded losses by more than £3,000.
The following example shows a position where gains and losses arise in the same tax year:
You realise £10,000 in gains on BTC and £10,000 in losses on ETH in the same tax year. The losses are automatically applied to the gain resulting in a net gain of £0.
In the above example, there's no CGT to pay, but the investor had no control over how the losses were applied. Effectively, £3,000 of losses were "wasted" covering gains which would have been tax-free under the annual exemption, which costs the investor between £540 and £720 in lost tax savings at 2025/26 rates. This highlights the importance of timing loss realisations carefully, particularly where the annual exemption may already cover existing gains.
2.2 Carrying Forward Losses to Later Years
If you have losses but no gains in a tax year, or if your losses exceed your gains, you can carry the unused losses forward to offset against future gains.
Losses can be carried forward indefinitely as long as you report them to HMRC within the required time limits. They will then offset against the first gains you make in a later. However, unlike same year losses, losses utilised from earlier years preserve your annual exemption in the year that you use them.
Furthermore, losses from crypto can be used to reduce gains on other investments, such as property or shares. So even if you had a made losses during a market downturn and decided never to invest in crypto again, it is still important to report losses within the relevant time limits, as they may later be available to offset gains on other assets.
Below is a simple example of how carried forward losses may arise:
In 2024/25, you realise £7,000 in losses in BTC and no gains. You report these losses to HMRC on your tax return for that year.
The full £7,000 is carried forward and can be used to reduce the earliest gains you make in later years.
And below is a further example of how carried forward losses may arise:
In 2024/25, you realise £13,000 in gains in BTC and £20,000 in losses on ETH.
There is a net loss of £7,000 which is carried forward and can be used to reduce the earliest gains you make in later years.
In both of the above examples, there are carried forward losses of £7,000 during 2024/25. The following example shows how those carried forward losses may be utilised against gains in 2025/26:
You have £7,000 of unused losses carried forward from a previous year. In 2025/26, you realise £9,000 in gains.
£6,000 of the losses are utilised and reduce the gains to £3,000, which is exactly the annual exemption for that year, meaning there is no CGT to pay.
Furthermore, as only £6,000 of the brought forward losses have been utilised, the remaining £1,000 is carried forward and available to use in later years.
3. How to Report Losses
The way you report a capital loss to HMRC depends on whether you already complete a Self Assessment tax return.
If you file a Self Assessment tax return
Include the loss in the Cryptoasset (for 2024/25 onwards - box 13.5) or the Capital Gains Summary (for earlier tax years) section of your return for the tax year it arose. Even if your gains are below the annual CGT exemption, entering the loss ensures it is officially recorded. HMRC will then carry the figure forward so it can be set against future gains.
If you do not normally file a tax return
If you want to benefit from the loss in the future, you must tell HMRC about the loss within four years of the end of the tax year in which you made the loss. To do this, write to HMRC with details of the loss, including the type of asset (cryptocurrency), the disposal date, and your calculation showing the loss amount.
The notification must be made within the relevant time limit; if you miss the deadline, the loss cannot be used to reduce future gains.
Conclusion
In practice, many investors focus on gains while overlooking the importance of properly reporting losses. In reality, gains are often followed by losses, and those losses can be valuable in reducing future tax bills. The four year time limit is especially relevant to crypto given its typical market cycles, meaning losses at the end of one cycle risk expiring before the gains of the next.
Properly reporting and tracking capital losses can help ensure they remain available to offset future gains.
If you are unsure how to calculate your losses or want to check whether you have claimed them correctly, it is worth seeking advice from a crypto accountant as soon as possible. Failure to report losses within the relevant time limits can prevent them from being used in future years.
