Capital gains tax: negligible value claims
What would happen if an asset you bought becomes worth almost nothing? Maybe you bought shares just before the pandemic but they aren’t worth anything!
When this happens, you could make a negligible value claim. This claim will allow you to crystalise the capital loss and give you the opportunity to use this loss against other capital gains. In some circumstances you can even use it against your income tax liability!
How does it work?
HMRC’s interpretation of ‘negligible value’ is a value that is ‘next to nothing’ but there is no official statutory definition. In order to make a negligible value claim you must have bought an asset that becomes worth ‘next to nothing’ whilst you own it. Claims cannot be made on an asset that was worth nothing when you bought it. The claim will treat the asset as being sold and then immediately reacquired on the date of the claim for a value that will be specified in the claim which in most cases will be nil.
You can backdate a negligible value claim up to two years before the tax year in which the claim is made. However, in order to make a backdated claim the asset must have been owned by you at the earlier date and become of negligible value either on or by the earlier date.
There are specific criteria that you need to meet in order to make a negligible value claim. The first unsurprising condition is that you must own the asset at the date of the claim. If you have shares where the company has been dissolved then you are automatically treated as having disposed of the shares at the time of dissolution. Therefore, you cannot make a negligible value claim on shares on or after the dissolution of a company. You must therefore be mindful of the timing of your claim.
If you are looking to make a claim on shares where the company has gone into receivership or liquidation then you will need to provide very specific information to HMRC in order for them to consider the claim. HMRC also keeps a list of shares and securities that have previously been listed on the London Stock Exchange which it will agree are now of negligible value but you will still need to make a claim on these shares to get the benefit. There is no such list for shares and securities in unquoted companies, non-UK companies or companies previously quoted on the Alternative Investment Market or PLUS Market.
Here to help
Claims can be made by writing to HMRC or through a Self Assessment tax return and we would strongly advise that before making the claim you discuss this with an advisor due to the importance of timing and possible backdating. We are always here to help should you require in depth advice on your options for capital losses for both individuals or companies.