Q. Can I claim a loss for my worthless shares? I cannot find a buyer and I have another taxable capital gain I would like to reduce.
A. It may be possible to claim the loss relief available when the value of an asset becomes negligible. The tax legislation does not define negligible, but HM Revenue & Customs has stated that in its view it means "worth next to nothing". In the case of shares quoted on the London Stock Exchange, HMRC publishes a list of shares it agrees have become of negligible value.
It is not necessary to physically dispose of the asset in question. If the claim is validly made, the owner is treated as having sold and reacquired the asset at its current market value. The deemed sale proceeds are then used to compute a capital loss in the usual way. The date of the deemed disposal and the creation of the loss is normally the date the claim is made, but it is possible to treat the loss as having arisen at an earlier date as long as the claim is made before the end of the two tax years following the tax year in which that earlier date falls. In such cases, the asset must have been of negligible value both on the earlier date and on the date of the claim.
Buildings and other structures can be treated as assets separate from the land on which they are situated in order to make a negligible value claim. Some care may need to be exercised in such cases because on making the claim in respect of the building, the person making the deemed disposal is treated as though the land comprising the site of the building has also been sold and reacquired for a sum equal to its market value. The result of this might not be in the taxpayer’s best interests.
A capital loss created by a negligible value claim in respect of certain company shares can also be used to reduce taxable income. The shares must have been in a qualifying unquoted trading company and full details of the qualifying conditions can be found in HMRC’s Helpsheet 286. This relief is particularly useful when there are limited or no capital gains against which to offset the loss.
If the asset subsequently rises in value and is sold, a capital gain is calculated by substituting the deemed disposal value at the time of the negligible value claim for the actual original cost of the asset. The effect of this is to reverse and claw back some or all of the loss previously claimed.
Ben Chaplin is managing director of Croner Taxwise
