A capital loss is a loss that is realized from the sale of a capital asset, such as real estate, stocks, or mutual funds. Capital losses occur when the sale price of the asset is lower than the original purchase price, resulting in a loss for the seller.

Capital losses can be used to offset capital gains in other transactions, which can reduce the overall tax liability on capital gains. For example, if an individual realizes a capital gain of £10,000 and a capital loss of £5,000 in the same tax year, the capital loss can be used to offset the capital gain, resulting in a net capital gain of £5,000.

It is important for individuals and businesses to keep track of their capital losses and to understand the tax rules surrounding their use. Capital losses can be an important tool for managing tax liability on capital gains, but they must be properly reported on tax returns.