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This publication is available at https://www.gov.uk/government/publications/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he
This helpsheet explains how you can:
- make a negligible value claim
- claim that certain allowable capital losses on the disposal of shares you subscribed for in a qualifying trading company should be set against your income
The following notes are a simplified summary of the legislation as it applies in some common cases. If you are in any doubt about your circumstances you should ask your tax adviser. We will also be pleased to help and provide any forms you may need. You can also consult our Capital Gains Manual, which explains the negligible value claim rules in more detail. The Venture Capital Schemes Manual explains the rules for claiming relief for losses on disposals of shares you have subscribed for in qualifying trading companies against your income.
This helpsheet will help you fill in the SA108 Capital gains summary pages of your tax return.
Negligible value claims
If you own an asset which has become of negligible value, you may make a claim to be treated as though you had sold the asset and immediately reacquired it at the time the claim is made for an amount equal to its value (a negligible value claim), which should be specified in the claim. Please note that you must still own the asset when you make the claim and that the asset must have become of negligible value while you owned it. An asset is of negligible value if it is worth next to nothing.
When you make a negligible value claim you may specify an earlier time falling in the 2 previous tax years, at which you should treat the deemed disposal as occurring. You have to meet all the necessary conditions for the claim at that earlier time as well as at the time you make the claim.
If you make a negligible value claim during the tax year 2015 to 2016, any loss resulting from the deemed disposal will arise in that year, unless you claim to be treated as if you had disposed of the asset at a time falling in 2013 to 2014 or 2014 to 2015.
If you want to claim a loss for 2015 to 2016, write to us giving details of the negligible value claim and your calculations of the capital loss resulting from the deemed disposal of the asset. Alternatively, you may make a negligible value claim during 2015 to 2016, before you make a loss claim, by sending the details to us. If you want us to check any valuation you have used in connection with that deemed disposal, you can include form CG34 with your negligible value claim. This will help you to calculate the loss for 2015 to 2016 which you will claim in your 2015 to 2016 tax return.
If you are making a negligible value claim for shares or securities, it is possible that the Shares and Assets Valuation Office will already have considered their value. That office publishes a list of shares or securities formerly quoted on the London Stock Exchange, which have been officially declared of negligible value. The negligible value list gives a tax year or a specific date at which Shares and Assets Valuation Office has accepted that the share or security is of negligible value. It also shows if the company has since been struck off the Register of Companies and been dissolved. You cannot make a negligible value claim after the company has been dissolved.
If you want to claim a loss for an asset that was or became of negligible value during 2014 to 2015, you should make the claim in your tax return for that year. Include the loss in box 6 on page CG 1 of the SA108 Capital gains summary pages and use code ‘NVC’ in boxes 22, 28 or 35 (as applicable) and provide an accompanying computation. If there are other transactions that are included in the same section of the SA108 and more than one code could apply to boxes 22, 28 or 35, then you should use code ‘MUL’ instead.
You should provide details of your negligible value claim (including the date during 2014 to 2015 when you want to be treated as if you had sold the asset) in box 37 on page CG 2 or in the computation included with your tax return. During the tax year 2015 to 2016 you may also be able to claim to be treated as if you had sold an asset you owned for its negligible value at the time falling in the tax year 2013 to 2014. You can do this by amending your 2013 to 2014 tax return on or before 31 January 2016 or, after that date, by sending a notice to us before 6 April 2016.
Claim to set loss against income
As described in the following paragraphs, you may be able to reduce your Income Tax liability where you have allowable capital losses available provided certain conditions are met. The losses must have arisen on a disposal of shares you acquired by subscription in a qualifying trading company, or following a negligible value claim in respect of such shares.
The rest of this helpsheet explains the conditions that must be met and how to claim the relief.
You subscribed £10,000 in 1995 for ordinary shares in a company making furniture. The business failed in August 2014, the shares becoming worthless. You made a negligible value claim for the shares in September 2014 and claimed an allowable capital loss of £10,000 for 2014 to 2015 from the deemed disposal of shares. If all of the conditions for relief are met, you may claim to set the allowable capital loss on the shares either against chargeable gains in the normal way, or against your income for 2014 to 2015 or against your income for 2013 to 2014.
In what type of company should I have subscribed for shares
If you claimed Enterprise Investment Scheme (EIS) Income Tax relief when you subscribed for the shares and that relief has not subsequently been withdrawn, the shares are treated as being in a qualifying trading company. Helpsheet 341 Enterprise Investment Scheme – Income Tax relief explains how to claim EIS Income Tax relief.
Otherwise, the company must satisfy the following conditions:
- the company must
- if the shares were issued to you on or after 6 April 1998, have carried on its business wholly or mainly in the UK from the time it was incorporated (or 1 year before the shares were issued to you if that is later) until the date of the disposal that results in the loss
- if the shares were issued to you before 6 April 1998, have always been resident in the UK
- the company must
- if the shares were issued to you on or after 6 April 1998,
- not have had gross assets whose value exceeded the limit in force when the shares were issued to you (see below for more information on the ‘gross assets rule’) and
- not have had any of its shares listed on a recognised stock exchange when the shares were issued to you and there must have been no arrangements then for any of its shares to be listed on a recognised stock exchange – if shares in the company were subsequently listed on a recognised stock exchange, the company will still be a qualifying company provided that the date of listing was on or after 7 March 2001
- if the shares were issued to you before 6 April 1998, not have had any of its shares listed on a recognised stock exchange since it was incorporated (or 1 year before the shares were issued to you if that is later)
- the company must not be a building society or a registered industrial and provident society
- the company must be a trading company, that is
- if the shares were issued to you on or after 6 April 1998, a company
- whose only purpose or existence, apart from purposes incapable of having any significant effect on the extent of its activities, is that of carrying on 1 or more qualifying trades (see the section headed ‘Do all trading companies qualify?’ below), or
- with 1 or more subsidiaries, provided the non-qualifying activities (such as investment activities or non-qualifying trades) of the group are not substantial – in this context, we generally regard anything amounting to more than about 20% as being substantial
- if the shares were issued to you before 6 April 1998, a company whose business consists wholly or mainly of the carrying on of a trade (or trades) or the holding company of a trading group
The gross assets rule
The gross assets rule applies to shares issued to you after 5 April 1998. Where the shares were issued before 6 April 2006 the company’s gross assets (or the group’s where you hold shares in the parent company of a group) must not exceed £15m immediately before, and £16m immediately after, the issue. For share issues from 6 April 2006 the limits are £7m and £8m respectively. See the section headed ‘Do all trading companies qualify?’ below for further details.
The company or the trading group may have stopped trading before you disposed of the shares. You may still be entitled to relief if this happened no more than 3 years before the disposal. See the section headed ‘Companies that have stopped trading’ below for further details.
Trading companies that do not qualify
Companies carrying on some trades do not qualify. If the shares were issued to you on or after 6 April 1998, companies carrying on the following trades do not qualify:
- those consisting wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments
- those that are not qualifying trades for the purposes of the Enterprise Investment Scheme
- those not pursued on a commercial basis and in such a way that they would be reasonably expected to make a profit
If the shares were issued to you before 6 April 1998, companies carrying on the following trades do not qualify:
- those consisting wholly or mainly of dealing in shares, securities, land, trades or commodity futures
- those not pursued on a commercial basis and in such a way that they would be reasonably expected to make a profit
In addition, there is no relief for losses on shares in the holding company of a non-trading group.
How long must the company have been a trading company
If the company was a trading company when you disposed of the shares, it must satisfy either of the following conditions:
- it was a trading company throughout the 6 years to the date of disposal
- it was a trading company throughout its active existence if that is less than 6 years
If your shares are in the holding company of a trading group, the group business as a whole must satisfy these conditions.
Companies that have stopped trading
You will still qualify for relief if the company has stopped trading when you dispose of the shares as long as all the following conditions are satisfied:
- the company stopped trading no more than 3 years before the disposal
- the company has not started a non-qualifying activity such as investment or a non-qualifying trade
- at the date it stopped trading it satisfied the conditions set out in the previous paragraph headed ‘How long must the company have been a trading company’
Share reorganisations or takeovers
If, as a result of a share exchange, the company in which you subscribed for shares becomes a wholly owned subsidiary of another company, the availability of loss relief against income will not be jeopardised, provided that the ownership of the new company is exactly the same as that of the old company. In such a case, the 2 companies will be treated as if they were one and the same company for the purpose of determining whether relief is available on the disposal of your shares in the new company.
In any other case, if the shares you dispose of were issued in exchange for shares in another company, there are only limited circumstances in which relief against income may be available.
You may also hold shares that were acquired following a share reorganisation in a company. Helpsheet 285 Share reorganisations, company takeovers and Capital Gains Tax describes the general rules for Capital Gains Tax where there is a share reorganisation. You may dispose of bonus shares which were issued to you without payment and for other shares you held in a company, being of the same class and carrying the same rights as those other shares. If so, then the bonus shares are treated as having being issued to you when the other shares were issued to you.
Where you acquire shares as part of a rights issue, the shares are acquired when they are issued to you. The time you acquired the shares is important for working out whether loss relief against income is due (for example, the gross assets rule).
If you have incurred an allowable capital loss on the disposal of shares which were issued to you in a reorganisation or in exchange for shares in another company, ask us or your tax adviser if you need more detailed information about the availability of relief against income.
The shares must not be fixed rate dividend preference shares and you must have subscribed for them individually (including subscriptions made jointly or through a nominee). You will also be treated as having subscribed for any shares your spouse or civil partner subscribed for and transferred to you during their lifetime. You will have subscribed for shares if they were issued to you by the company for money or money’s worth.
The loss must have been made on a disposal by way of either:
- a negligible value claim
- an arm’s length bargain
- a distribution made in the course of winding up the company
- the dissolution of the company
Calculating the allowable loss
If you claimed EIS Income Tax relief when you subscribed for the shares, the amount of Income Tax relief must be deducted from your loss.
In 2003 you subscribed £10,000 for shares and claimed EIS Income Tax relief of £2,000 (£10,000 at 20%). In 2014 the company fails and you make a negligible value claim. You can claim loss relief of £8,000 (£10,000 less £2,000).
Otherwise, you calculate the loss in exactly the same way as other allowable capital losses. If you subscribed for all the shares disposed of, all of the allowable loss is available for relief but from 2014 to 2015 the total amount of Income Tax reliefs you can claim is limited to £50,000, or 25% of your income if that is greater. This limit does not apply to losses on shares to which EIS or Seed Enterprise Investment Scheme (SEIS) relief is attributable. Helpsheet 204 Limit on Income Tax reliefs explains which reliefs are included in the limit.
You may have a holding of shares some of which you subscribed for and some of which you bought or acquired by gift or inheritance. Only the shares you subscribed for will qualify for relief. There are rules for determining what proportion of the allowable loss qualifies for relief. Ask your tax adviser or us for details. Any part of the allowable loss that is not set against income remains an allowable loss to be deducted from chargeable gains. Any loss you use against your income is not available to use against capital gains.
If you claimed deferral relief when you subscribed for EIS shares the deferred gain is revived when you dispose of your EIS shares. Helpsheet 297 Enterprise Investment Scheme and Capital Gains Tax explains deferral relief and when deferred gains are revived.
How and when to claim the relief
The relief has to be claimed within 1 year of 31 January following the year in which the loss was made. An allowable loss made in 2014 to 2015 therefore has to be claimed on or before 31 January 2017.
If you make an allowable loss in 2014 to 2015 you can claim the relief for 2014 to 2015 or 2013 to 2014. You can make those claims as follows:
|2014 to 2015||You can claim the relief by making an entry in box 12 on page CG 1 of the SA108 Capital gains summary pages. You must also include the capital losses that are the subject of your claim in box 6 on page CG 1 and give details of the capital losses on page CG 2 in the ‘Any other information’ box, box 37 or in your computations.|
|2013 to 2014||You can claim the relief by making an entry in box 14 on page CG1 of the SA108 Capital gains summary pages. You must also include the capital losses that are the subject of your claim in box 6 on page CG 1 and give details of the capital losses in the ‘Any other information’ box, box 37, on page CG 2 of the SA108 or in your computations. Any relief due for 2013 to 2014 will be given as an adjustment to the amount of tax for 2014 to 2015.|
If you claim Income Tax relief for a capital loss, you cannot also set the losses against capital gains.
If you made an allowable loss in 2013 to 2014, you have until 31 January 2016 to claim relief against your income of 2013 to 2014 or 2012 to 2013 by amending your 2013 to 2014 tax return.
How the relief is given
The relief is given by deducting the allowable loss from your total income from all sources, before any deduction for your personal Income Tax allowances. This means you cannot restrict the claim to leave your income equal to your personal Income Tax allowances.
You may claim that the loss be set against your income of the year in which the loss arose or against your income of the preceding year. If the loss is sufficiently large, you may claim that it be set against the income of both years. If you claim for both years, your claim should show which year is to take priority.
If there is still a balance of unused capital loss, it can be deducted from chargeable gains in the usual way.
An allowable capital loss made in 2014 to 2015 can be claimed against your income in 2014 to 2015 or 2013 to 2014 or both years depending on the amount of your income and losses.
In 1995 you subscribed £50,000 for ordinary shares in a trading company. In 2014 the company fails and you make a negligible value claim for 2014 to 2015. You have an allowable loss of £50,000. Your income and Income Tax personal allowances for 2013 to 2014 and 2014 to 2015 are as follows:
|2013 to 2014||2014 to 2015|
You may claim that the allowable loss on the shares be set against your income for 2014 to 2015 and any balance against your income for 2013 to 2014. The relief is given as follows:
|2013 to 2014||2014 to 2015|
|Minus personal allowances||£8,105|
Please bear in mind that the allowable loss on the shares used in 2013 to 2014 may not be restricted to preserve your personal allowances. Alternatively, you may claim £30,000 against your 2013 to 2014 income and, if you want, £20,000 in 2014 to 2015.
There is an order of priority if you are also claiming a deduction for other losses.
In 2014 to 2015 this is:
- first, allowable capital losses on shares disposed of during 2014 to 2015
- second, allowable capital losses on shares carried back from 2015 to 2016
- third, other Income Tax losses
For losses made in 2014 to 2015 onwards, the total of all Income Tax losses which can be claimed against a year’s income is limited to £50,000, or 25% of that income if greater. This limit does not apply to losses on shares to which EIS or SEIS relief is attributable. Helpsheet 204 Limit on Income Tax reliefs explains which reliefs are included in the limit.
Please note that any allowable capital losses on shares not set against your income can be deducted from chargeable gains in the usual way.
Online forms, phone numbers and addresses for advice on Self Assessment.