What is tax-loss harvesting and how does it work in the UK?
Tax-loss harvesting means deliberately selling an investment that's down to crystallise a capital loss, which you then offset against capital gains elsewhere to reduce your CGT bill. It only applies to assets held outside an ISA or pension. The crucial UK rule is the 30-day 'bed and breakfasting' rule: if you sell and rebuy the same asset within 30 days, the loss is disallowed — so to stay invested you buy a similar-but-not-identical fund instead. Realised losses can also be carried forward to future years if registered with HMRC.
The basic idea
Capital gains tax is charged on your net gains in a tax year — total gains minus total losses. If you have a holding sitting at a loss in a taxable (general investment) account, selling it turns a paper loss into a realised one you can subtract from your taxable gains. With the annual CGT allowance now just £3,000 and rates at 18%/24%, harvesting losses to bring net gains under the allowance can save real money.
A worked example
Suppose you've realised a £10,000 gain this year. After the £3,000 allowance, £7,000 is taxable — £1,680 for a higher-rate taxpayer at 24%. If you also hold a fund down £5,000, selling it creates a £5,000 loss that nets your gain down to £5,000, then to £2,000 after the allowance — taxable at 24% is £480. The loss has saved you £1,200, and you can reinvest the proceeds to stay in the market.
The 30-day rule — the UK's key difference
You can't simply sell a fund for the loss and buy it straight back. The UK "bed and breakfasting" rule disallows the loss if you repurchase the same security within 30 days. There are two clean ways around it:
- Buy a similar but different fund — sell one FTSE All-World tracker at a loss and buy a different provider's global tracker. You keep near-identical market exposure while the loss still counts.
- Bed & ISA or bed & SIPP — sell in the taxable account and rebuy the identical asset inside an ISA or pension. The 30-day rule doesn't apply when the repurchase is inside a wrapper, and you also shelter future growth from tax permanently.
Carrying losses forward
If your losses exceed your gains, the surplus isn't wasted. You can carry losses forward indefinitely to offset gains in future tax years — but only if you report them to HMRC, generally within four years of the end of the tax year in which they arose. It's worth registering losses even in a year you have no gains to use them against.
The caveats
Don't let the tax tail wag the investment dog — only sell holdings you're genuinely happy to exit or replace, not good long-term positions you'd regret losing. Losses inside an ISA or pension don't count (there's no CGT there to offset). And spouses can transfer assets between each other tax-free, which opens up additional planning around using both partners' allowances.
Key takeaway: Tax-loss harvesting can meaningfully cut a CGT bill, but in the UK the 30-day rule is what makes it tricky — replace a loss-making holding with something similar rather than identical, or rebuy it inside an ISA, and register surplus losses with HMRC to use later.
Arken identifies unrealised losses across your taxable holdings, matches them against your realised gains, and shows the CGT you could offset — plus which positions are candidates to harvest or move into a wrapper.
