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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: a simple case without complications: is it the right sort of disposal?

Having established that there has been a disposal of shares, you must be certain that the disposal is either

  • By way of a bargain made at arm’s length (so a loss accruing on a sale of shares at under value cannot be subject to a Share Loss Relief claim, even though the allowable loss computed under TCGA rules is based on the market value of the shares disposed of rather than the actual consideration received, TCGA92/S17). Note that the treatment imposed by TCGA92/S18(2) does not apply for Share Loss Relief purposes, so the question of whether a bargain is made at arm’s length must be determined only according to the terms of the transaction and not by reference to whether the parties are connected or not. For guidance on the meaning of a bargain at arm’s length, see CG14541.
  • By way of a distribution in the course of dissolving or winding up the company. In these circumstances a shareholder does not part with his or her shares but TCGA92/S122 deems there to be a disposal of an interest in the shares, see CG57800 onwards. ITA07/S131(3)(b) includes this deemed disposal in the list of disposals that can give rise to a loss qualifying for Share Loss Relief.
  • A disposal within TCGA92/S24(1), that is to say the entire loss, destruction, dissipation or extinction of the shares. ITA07/S131(3)(c)includes this deemed disposal in the list of disposals that can give rise to a loss qualifying for Share Loss Relief.
  • A deemed disposal under TCGA92/S24(2), that is to say a disposal resulting from a negligible value claim. ITA07/S131(3)(d) includes this deemed disposal in the list of disposals that can give rise to a loss qualifying for Share Loss Relief. (There is detailed guidance on negligible value claims at CG13118+).

Also, the disposal must not arise as a result of the action of TCGA92/S137. Section 137 is an anti-avoidance provision and where it applies a transaction (such as a share-for-share exchange) which would otherwise be deemed not to involve a disposal (for instance because section 135 would apply), is after all recognised for TCGA purposes. So where this anti-avoidance statute applies it is not open to the shareholder to claim Share Loss Relief in respect of the resulting capital loss.