Share Loss Relief: background: statutory history
For individuals, Share Loss Relief was introduced by FA1980/S37 and has effect in relation to disposals of shares after 5 April 1980, irrespective of when the shares were acquired.
For companies, Share Loss Relief was introduced by FA1981/S36 and has effect for disposals of shares on or after 1 April 1981, irrespective of when the shares were acquired.
In 1988, the relevant parts of the 1980 and 1981 Finance Acts were consolidated as ICTA88/S573 to 576. S573 to S576 were later revised, principally by the 1994, 1998, 2000, 2001 and 2004 Finance Acts, prior to being rewritten in ITA 2007 and CTA 2010.
As Share Loss Relief evolved it was important to ensure that shares originally bought with a proper expectation that they would be eligible for relief would not cease to be eligible because of later changes to the law. So it is very important to know the date of acquisition of the shares on which the loss arises when you are looking at a claim to relief, and to understand the rules which applied at that date. You will also need to check that the necessary conditions have been met during the period of ownership and at the time of disposal. The precise terms of these conditions, and where in the Taxes Acts they are set forth, will depend on the date of the disposal. Addressing these questions may not be straightforward, and this guidance will help you identify the relevant rules.
Finance Act 1994 changes
For losses accruing to individuals in years up to and including 1993-94, relief could be claimed in the year in which the loss accrued or the following year. FA94/S210 changed this, so that losses accruing in 1994-95 and later years could be relieved against income in the year of loss or in the preceding year. This was achieved by amending ICTA88/S574.
Also, FA 1994 introduced the Enterprise Investment Scheme (EIS) to replace the Business Expansion Scheme for shares issued after 31 December 1993. Losses incurred by individuals on disposals of shares to which EIS relief is attributable are within the scope of Share Loss Relief in the same way as are losses on shares in qualifying trading companies for which the individuals subscribed. For guidance on EIS, see VCM10000+.
Finance Act 1998 changes
The types of trading company whose shares are eligible for Share Loss Relief were redefined by FA 1998 so that similar qualifying conditions applied for the EIS, Venture Capital Trust (VCT) investments and Share Loss Relief. The unified conditions apply to shares issued on or after 6 April 1998.
Finance Act 2000 changes
FA 2000 introduced a new group of reliefs for companies, known as ‘investment relief’, under the Corporate Venturing Scheme. There were consequential changes to the Share Loss Relief rules at ICTA88/S573 to ensure that investment relief for losses on shares took precedence over Share Loss Relief in respect of the same losses. Investment relief could apply to shares issued on or after 1 April 2000 but before 1 April 2010.
In order to ensure that investment relief was compatible with Share Loss Relief, the rules for identifying shares at ICTA88/S576 were disapplied in cases where investment relief was in point, and the identification rules at FA00/SCH15/PARA93 applied for Share Loss Relief as well as for investment relief purposes.
FA 2000 also extended the scope of Share Loss Relief so that it was available on losses which accrued on the entire loss, destruction, dissipation or extinction of shares (ie on a disposal deemed by TCGA92/S24(1)): previously losses under section 24(2) had been eligible (negligible value claims), but not losses under subsection (1).
Finance Act 2001 changes
The EIS was revised by FA 2001 so that relief continued to be available (subject to certain conditions) in respect of shares if the issuing company became a quoted company after it issued the shares. For Share Loss Relief purposes, the definition of a qualifying trading company at ICTA88/S576(4) was similarly amended. The amended definition of a qualifying trading company applies to shares issued on or after 7 March 2001. Where the issuing company ceases to be an unquoted company on or after 7 March 2001, it also applies to shares issued after 5 April 1998 but before 7 March 2001: this is an extension of the scope of Share Loss Relief, as such a company would previously have ceased to be a qualifying trading company when it became quoted, and Share Loss Relief would no longer have been available for losses on its shares.
Finance Act 2004 changes
FA 2004 made changes primarily to the EIS, with the result that the meanings of certain terms used in Share Loss Relief were also changed. The most significant change was the meaning of ‘qualifying subsidiary’, a concept used in determining which companies’ shares are eligible for relief. For shares issued after 16 March 2004 the definition was based on 51% subsidiaries, whereas previously it had been based on 75% ownership of shares and voting power. For detailed guidance, see VCM13130.
Income Tax Act 2007
The Tax Law Rewrite project consolidated, with minor amendments, all the provisions relating to Share Loss Relief as claimed by individuals. They are now in ITA07/S131 to S151. The rewritten statute clarified a number of points and formalised certain existing practices. The provisions relating to company claimants remained in ICTA until CTA 2010, though ITA 2007 inserted the rules defining ‘qualifying trading companies’ into the same part of ICTA as the main Share Loss Relief provisions (at sections 576A-K) where previously they had been in the part of the Act dealing with the EIS (Part VII, Chapter III).
ITA 2007 therefore repealed or amended various parts of the ICTA provisions. For income tax purposes, these repeals and amendments were effective from 6 April 2007 and for corporation tax purposes for accounting periods ending after 5 April 2007.
Corporation Tax Act 2010
The Tax Law Rewrite project then went on to deal with the share loss provisions as they related to corporate claimants. The consolidated provisions are now at CTA10/S68 to S90. The rewritten statute clarified a number of points and formalised certain existing practices.
CTA 2010 therefore finally repealed the Chapter of ICTA 1988 which provided for Share Loss Relief (S573 to S576L). For corporation tax purposes CTA 2010 has effect for accounting periods ending on or after 1 April 2010, and for income and capital gains tax purposes for the tax year 2010-11 and subsequent years.
Finance Act 2013 changes
FA 2013 introduced a limit on income tax reliefs, including Share Loss Relief for capital losses arising in the tax year 2013-14 and later. Before this, had been unlimited and could be set against the whole of a person’s income. Following this Act Share Loss Relief and certain other reliefs cannot in aggregate exceed £50,000, or 25% of the person’s income if this is greater.
This limit applies only to claims by individuals; company claims are unaffected. Share Loss Relief claims on shares to which EIS or SEIS relief is attributable are outside the scope of this limit. For detailed guidance, see VCM74035.