What is a negligible value claim for Capital Gains Tax?

Full answer

A negligible value claim is a valuable but underused tax relief for investors left holding shares or other assets that have become essentially worthless, allowing them to realise the loss for tax purposes without needing to find a buyer for something nobody wants. **The problem it solves** Normally, a Capital Gains Tax loss can only be claimed when you actually dispose of an asset -- but if a company has gone into liquidation or its shares have simply become worthless (delisted, insolvent, or otherwise clearly of no remaining value), there may be no practical way to sell the shares to crystallise the loss in the conventional sense, since no buyer would pay anything for them. **How the claim works** A negligible value claim lets you make a formal election to HMRC treating the asset as though you had sold it, and immediately reacquired it, at its current negligible value (often treated as nil, or very close to it) on a date of your choosing (which can be any date within the current tax year, or up to two tax years before the tax year in which the claim is made, provided the asset was ALREADY of negligible value on that earlier date). This crystallises an allowable capital loss equal to your original acquisition cost (less the negligible value received), even though you haven't actually disposed of the asset to anyone. **What qualifies as "negligible value"** HMRC accepts a negligible value claim where an asset has become worth next to nothing -- common examples include shares in a company that has entered formal insolvency proceedings (administration, liquidation) with no realistic prospect of a distribution to shareholders, or shares that have been suspended or delisted with the company having ceased trading. HMRC maintains a published list of shares it already accepts have become of negligible value on a specific date, which can simplify making a claim for well-known company failures, though you can also make a claim for other qualifying assets not on the list, with supporting evidence. **Offsetting the loss -- capital gains first** Once crystallised, the loss is generally used in the same way as any other capital loss -- offset against capital gains realised in the same tax year first (mandatory), with any remaining unused loss carried forward indefinitely to offset against future years' capital gains. **Share Loss Relief -- offsetting against INCOME instead** For shares in a QUALIFYING TRADING COMPANY (broadly, an unquoted or AIM-listed trading company, subscribed for directly by the investor, meeting further conditions), a negligible value claim loss can, alternatively, be set against your INCOME for the same or previous tax year instead of against capital gains -- known as Share Loss Relief. This can be considerably more valuable than capital loss relief if you have little or no capital gains to offset against, since it can generate tax relief at your marginal Income Tax rate (up to 45%) rather than being stuck waiting for a future capital gain to use the loss against. **EIS and SEIS shares -- extra relief available** If the worthless shares were originally EIS or SEIS qualifying investments, the loss relief calculation is particularly favourable, since the "cost" for loss relief purposes is reduced by any EIS/SEIS Income Tax relief you already claimed when you originally invested, meaning the effective net cost (and therefore the tax benefit of a total loss) reflects the fact you already received some of your investment back via the initial tax relief. **Time limits for claiming** A negligible value claim (and any related Share Loss Relief claim against income) generally must be made within specific time limits after the relevant tax year -- broadly, claims must be made within four years of the end of the tax year to which they relate for capital loss claims, with income relief claims often subject to tighter, earlier deadlines, so don't delay making a claim once you're confident an asset genuinely has become worthless. **Practical tip** Check HMRC's published list of accepted negligible value shares first for well-known company failures, and if your specific holding isn't listed, gather clear evidence of the company's insolvency or delisting (such as an administrator's report confirming no return to shareholders) to support your claim, since HMRC can query claims that aren't well-evidenced.

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