Share Loss Relief: individual and corporate claimants: individual claimants: deemed disposals where shares have become of negligible value
Negligible value claims - CGT background
Where an asset has become of negligible value during the period in which it is owned the owner may make a ‘negligible value claim’ under TCGA92/S24(1A). The asset is then treated as having been sold and immediately reacquired by the owner for an amount equal to the (negligible) value specified in the claim. This deemed disposal takes place, and hence any allowable loss accrues, either at the time of the claim or at an earlier time as permitted by TCGA92/S24(2). There is guidance on negligible value claims at CG13118+.
A deemed disposal under TCGA92/S24(2) is also a disposal for Share Loss Relief purposes, as provided by ITA07/S131(3)(d).
Depending on the circumstances of the case, you should consider whether the negligible value claim is competent. Not only must the asset in question be of negligible value, it must also have become of negligible value whilst it was owned by the claimant (or have been acquired by the claimant in a no gain/no loss transaction from a person in whose hands it became of negligible value). If the shares were of negligible value when they were issued to the claimant, they would not have become of negligible value so no claim can be made under section 24(2).
For instance, an individual may have a credit balance on his or her loan account with a company. Instead of repaying the debt, the company might issue shares to the creditor in satisfaction of the debt. TCGA92/S251(3) means that the shares are usually treated as having been acquired at a cost no greater than their market value: this may be less than the nominal value of the debt and could be a negligible figure. If those shares are subsequently disposed of, any loss will be computed using the cost under section 251(3) and not the ‘face value’ of the debt. For guidance, see CG53516A.
You may be able to accept that the shares are of negligible value without obtaining confirmation from Shares and Assets Valuation (SAV) (HMRC website) if the conditions in CG13131 are met, but that alone does not prove that the shares have become of negligible value. You must always ask SAV to agree the market value if a valuation at the date of issue of the shares is required. If the negligible value claim does not fall within CG13131 and you need a valuation at the date of issue, ask for both valuations at the same time.
In considering a claim for Share Loss Relief you will have to establish the amount of the allowable loss the claimant incurred on a disposal (or deemed disposal) of shares in a qualifying trading company. You will often have to ask SAV to agree the value of the shares in question at a specified time. Guidance on how to approach SAV to agree the value of unquoted shares is at CG59540+ in the Capital Gains Manual.
Relationship between negligible value and Share Loss Relief claims
Where a claim to Share Loss Relief depends on there being a deemed disposal of shares which have become of negligible value, it is important to ensure that there is a claim under TCGA92/S24because that is the provision which deems there to have been the disposal necessary for a claim to Share Loss Relief to be competent. It is sometimes the case that there is a Share Loss Relief claim but no claim that shares have become of negligible value: in such cases the claim to Share Loss Relief is not competent. This was confirmed by the Special Commissioners (the predecessors of the First Tier Tribunal) in Ross Marks v John McNally (SpC428/04).
There is no time limit for making a claim that an asset has become of negligible value (except that the asset must still be held by the claimant at the time for which the claim is made and so a claim cannot be made in respect of shares in a company for any time after the company has ceased to exist) but any delay in making a claim may constrain the date of the deemed disposal where a date earlier than the date of the claim is specified (as permitted by section 24(2)(b)). This may be relevant when considering if the shares were shares in a qualifying trading company at the time of the disposal: the definition of qualifying trading company includes a limit on the length of any period prior to disposal during which the company was not trading, see VCM74990. For example, the shares may be shares in a company that ceased to meet the trading requirement on 3 March 2004. A claim that the shares are of negligible value is made on 14 December 2010. The earliest date when the disposal of the shares can be deemed to have taken place is 6 April 2008. However, this is more than three years after the company ceased to meet the trading requirement (see ITA07/S134(2)(b)) so no Share Loss Relief is due.