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If relief for a trading loss is claimed against other income for the current or previous tax year, the claim can be extended by election to capital gains tax if there is insufficient income in the year to fully utilise the loss.

This can be useful in some circumstances.

This relief allows an unused loss to be set against the chargeable gains for the year, reducing the capital gains tax payable for the year. However, the loss is set against gains before utilising the annual exemption and consequently a claim will not always be worthwhile.

Example:
Paul makes a loss in 2015/16 of £25,000.

He has no other income in that year, but makes a capital gain of £80,000.

He elects to extend the loss to capital gains. The loss is set against the capital gain of £80,000 saving him capital gains tax of £7,000 (£25,000 @ 28%).

As his remaining gains (£55,000, being the £80,000 gain less loss relief of £25,000) exceed the capital gains tax annual exempt amount of £11,100 for 2015/16, using the loss in this way does not waste this exemption.