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HMRC internal manual

Savings and Investment Manual

Deeply discounted securities: taxation: losses

Losses: listed securities held since 26 March 2003

With one exception for government securities (see SAIM3140), FA03 abolished relief for losses on relevant discounted securities, for transfers and redemptions occurring on or after 27 March 2003. Nor is loss relief available for incidental expenses incurred on or after that date.

This is subject to a special rule now set out in ITTOIA05/S453 to S456. This applies where the person making the loss had held the security since before 27 March 2003 and it was listed on a recognised stock exchange. A loss is incurred where the acquisition cost exceeds the disposal proceeds, disregarding any incidental costs of acquisition or disposal. Incidental costs may increase the loss but not create the loss, and are allowed as a deduction from the disposal proceeds.

Costs incurred in re-acquiring a security are not admissible (ITTOIA05/S455 (4)).

The loss is set against the person’s income charged to income tax for the year, or in the case of trustees, the trustee’s profits. No loss is allowed to non-UK resident trustees (ITTOIA05/S458 (2)).

A claim for loss relief must be made by the anniversary of the normal self assessment filing date for the tax year in which the disposal occurs.

No loss is allowable on the transfer of securities issued at a value above that at which they are subsequently transferred and the issue and the transfer are to connected persons. The market value rules in ITTOIA05/S440 and S441 (SAIM3090) apply on disposal and not on issue. Securities issued above market value to a connected person and then transferred to another connected person at market value would therefore generate a loss.

ITTOIA05/S456 prevents such a loss arising, where the person disposing of the security was either connected with or (together with others) controlled the issuing company (wherever the company is resident), and the security was acquired at issue at above market value.

From 2013-14 there is a limit on the amount of income tax relief that an individual may claim for deduction from their total income in a tax year. The limit in each tax year is the greater of £50,000 or 25% of the individual’s adjusted total income.