A. Before looking at the possibility of income tax relief, it is imperative to establish when a capital loss arose and how much that loss is. We are told that “small capital distributions” were received but not the dates or amounts. Each capital distribution is a disposal for capital gains tax purposes under s122 TCGA 1992. Because the shareholding is one fungible asset for CGT purposes, each capital distribution is a part disposal under s42 TCGA 1992. The amount of the cost applicable to the distribution is given by s42 as cost x A/A+B. where A is the consideration received (the capital distribution) and B the remaining share value. Therefore where there are capital distributions
by a liquidator the entire cost is usually written off against the s122 distributions leaving shares (with no cost) ceasing to exist on company dissolution (with no proceeds). If there are no capital distributions, then the only disposal is the shares ceasing to exist on dissolution when the cost is deducted – creating a loss.
A negligible value claim can be made under s24 TCGA 1992 but only while the shares are still owned at the time the claim is made. Therefore if the company has indeed been dissolved, the shares no longer exist and so a negligible value claim is not possible. A negligible value claim can specify the assets were of negligible value at an earlier date providing it can be substantiated that they were indeed of negligible value at that earlier date. As negligible effectively means worthless, it would not be possible to argue this whilst there was the possibility of further capital distributions by the liquidator. Therefore, if the company has not yet been dissolved, some further work would need to be carried out to establish whether the shares were worthless prior to the date of claim.
Once the amount and date of the capital loss have been established, the possibility of income tax relief under s131 ITA 2007 can be reviewed. Although losses on qualifying EIS or SEIS shares automatically qualify for relief, there are numerous conditions to be met for the losses on other company shares to qualify and these need to be reviewed in detail. The above capital gains rules will have established the tax year in which the losses have arisen. However, s132 ITA 2007 then states that income tax relief can be claimed for the tax year of loss, the previous year – or both (meaning the qualifying loss can cover the income of one year and the excess then used against income of the other).
If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
