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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: more complex cases: mixed holdings and part disposals: limiting share loss relief: third case

ITA07/S147 starts with the premise that an individual has disposed of qualifying shares and sets out three groups of circumstances in which the amount of Share Loss Relief available on that disposal may need to be limited to a figure below the allowable loss computed for TCGA 1992 purposes.

The third group of circumstances is where the qualifying shares disposed of are treated as the same asset as other shares that are not capable of being qualifying shares by virtue of TCGA92/S127. This situation might arise where an individual holds shares which she bought in the market (and which are therefore not capable of being qualifying shares) and acquires new shares under a rights issue such that the new shares are qualifying shares. For TCGA purposes, the original shares (taken together as a single asset) and the new shares plus the original shares (all taken together as a single asset) are treated as the same asset.

The ‘same asset treatment’ imposed by TCGA92/S127 means that when any of the new, qualifying shares are disposed of their allowable cost is a function of both the amount given for them under the rights issue and the cost of the original shares in respect of which they were issued. Costs can ‘leak’ from the original non-qualifying shares to the new qualifying shares and in extreme cases an allowable loss in respect of the new shares computed using the TCGA rules may be greatly overstated.

Where this is the case the amount of Share Loss Relief on the disposal of the qualifying shares is not to exceed the sums which would be allowed as deductions in calculating the loss if the two sets of shares were not to be treated as the same asset.


Ms J bought 5,000 A Ordinary shares in Q Limited from her fellow director for £3 each. They are not capable of being qualifying shares. Q Limited makes a rights issue and Ms J subscribes for a further 1000 shares at £1.50 each. Later, Q Limited goes into liquidation and there are no distributions to shareholders. Ms J makes a negligible loss claim under TCGA92/S24(2)(which is accepted) and also a claim to Share Loss Relief.

The rights issue is a reorganisation of Q Limited’s share capital within TCGA92/S126 and so S127 applies. The 1000 new shares and the 5,000 original shares, taken together, are treated as the same asset as the 5,000 original shares. Under the TCGA rules, Ms J has a single allowable loss of £16,500 (5,000 x £3 + 1000 x £1.50) of which £2,750 (1000/6000) is attributable to the 1000 qualifying shares.

But ITA07/S147(6) requires us to compare this with the deductions allowable in respect of the qualifying shares had they not been treated as the same asset as the other shares. The deductions would have been the amount subscribed for the new shares, ie 1000 x £1.5 = £1,500, so in this case the Share Loss Relief available is restricted to £1,500. The balance of the allowable loss attributed to the qualifying shares (£1,250) is still available to be set against chargeable gains of the same or a later year.