If an asset becomes of negligible value during ownership and that asset is still owned, it is possible to make a negligible value claim under TGCA 1992 s24. This makes it possible to claim a loss while the shares are still held and before the company has been dissolved.
As you have been advised by the liquidator that there is unlikely to be any capital distribution, HMRC should accept that the shares have become worth next to nothing.
If you subscribed for the shares in the company, i.e. they were issue directly to you by the company, they may qualify for share loss relief whereby a capital loss can be set against income under ITA 2007 s131. If you had acquired the shares from a third party, they would not qualify for share loss relief and the capital loss could only be set against capital gains.
I have assumed that the shares for which you subscribed did not qualify for EIS relief.
The conditions for share loss relief are as follows:
– Shares are in a qualifying trading company
– Individual has subscribed for the shares or has acquired them from a spouse or civil partner who subscribed for the shares
– A disposal has occurred – a negligible value claim is a disposal for capital gains tax purposes
A qualifying trading company must meet two general requirements and four further requirements under ITA 2007 s137-142. These are as follows:
General requirements:
– Company’s gross assets did not exceed £7m immediately before the shares were issued and did not exceed £8m immediately after issue.
– The company was unquoted when the shares were issued and at that time there were no arrangements for it to become quoted.
Further requirements:
– The company exists to carry on a qualifying trade on a commercial basis.
– The company does not control any other company (except for qualifying subsidiaries) and is not controlled by another company.
– Any subsidiaries must be qualifying subsidiaries (more than 50% owned directly or indirectly)
– Where a subsidiary’s business is wholly or mainly the holding or managing of land, it is a 90% subsidiary.
The four further requirements must be met at the time of the disposal of the shares or, if the company has ceased to trade, not more than 3 years before the time of disposal.
If the shares do qualify for share loss relief, a claim can be made to set the loss against income for the tax year of the loss, the previous tax year or both. If a claim is made for both years, it should specify the year for which the claim is to be made first (ITA 2007 s132).
It is not possible to restrict the amount of the loss to be set against income for a particular year so it must be set in full against income even where this reduces the income to nil and the personal allowance is wasted.
A claim must be made by the first anniversary of the filing deadline for the year of the loss. For example, for a loss in 2023/24 a claim would need to be made by 31 January 2026.
Please note that any claim to set the capital loss against income in a tax year will be subject to the restriction under ITA 2007 s24A, i.e. the maximum of £50,000 or 25% of adjusted total income if higher. If the loss cannot be relieved in full against income, any unrelieved loss will be carried forward to set against any future capital gains. If, for example, the capital loss for 2023/24 is £150,000 and the share loss relief is restricted to £50,000 for both 2023/24 and 2022/23, the remaining loss of £50,000 can be carried forward as a capital loss.
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