Guidance

HS286 Negligible value claims and Income Tax losses on disposals of shares you have subscribed for in qualifying trading companies (2023)

Updated 6 April 2024

This helpsheet explains how to make 2 different types of claim, which are:

• negligible value claims allowing you to treat an asset as being disposed of, even though you still own it — that disposal will normally result in a loss, which needs to be notified to HMRC
• claims to set certain allowable capital losses on the disposal of shares you subscribed for in a qualifying trading company, against your income (share loss relief) — the disposal may be as a result of making a negligible value claim, but the relief is available for other types of disposal (further details are given below)

The following notes are a simplified summary of the legislation as it applies in some common cases. The notes are only an introduction so if you’re in any doubt about your circumstances, you should ask your tax adviser. We will also be pleased to help and provide any forms you may need.

You can also consult our Capital Gains Manual, which explains the negligible value claim rules in more detail.

The Venture Capital Schemes Manual explains the rules for claiming relief against your income for losses on disposals of shares you have subscribed for in qualifying trading companies.

This helpsheet will also help you fill in the SA108 Capital Gains Tax summary pages of your tax return.

Negligible value claims

If you own an asset which has become of negligible value in your ownership, then you may choose to make a negligible value claim so that you’re treated as having disposed of an asset even though you remain the owner.

There are special rules that apply when you want to make a negligible value claim for a building or structure. These rules are explained in the Capital Gains Tax Manual CG13137.

The claim is made when we receive it, even if you choose to use a tax return to make the claim. The conditions for making a claim are that:

• you must still own the asset when you make the claim
• the asset must have become of negligible value while you owned it

So, if the asset was of negligible value when you acquired it, then it could not become of negligible value when you owned it. An asset is of negligible value if it is worth next to nothing.

You can provide details of your negligible value claim in box 54, ‘Any other information’, on page CG 4 of the Capital gains summary (SA108) pages or in your computations included with your tax return.

If you make a competent negligible value claim then you’ll be treated as though you had disposed of the asset and immediately reacquired it at the time the claim is made for an amount equal to the value which you specified in the claim.

When you make the claim, you may choose to specify an earlier time when you will be treated as though you had disposed of and immediately reacquired the asset. If you want to specify an earlier time, then you have to meet all of the necessary conditions to make the claim at the time the claim is made. These are:

• you must still own the asset when you make the claim
• the asset must have become of negligible value while you owned it

In addition, you must also meet some further conditions.

These are that:

• you must have owned the asset at the earlier specified time
• the asset must have become of negligible value on or by the earlier specified time

The earlier time you choose can be up to 2 years before the start of the tax year in which you make the claim. So, if you submitted your tax return on 31 January 2024 and included a claim with that tax return then you could specify an earlier time from 6 April 2021 to 30 January 2024.

Any delay in making a claim may affect the earlier years which you may specify. So, if you sent in your 2022 to 2023 tax return on 1 May 2024 then the earliest date you could specify for a disposal would be 6 April 2022.

If you make a negligible value claim with your 2022 to 2023 tax return and you want to include the capital loss from any deemed disposal in that tax return then you’ll need to specify a date in the claim within the period from 6 April 2022 to 5 April 2023 for the deemed disposal. Please note the date you choose could affect your ability to claim some reliefs.

Example 1

You subscribed £15,000 for ordinary shares in a company in 2009. In March 2023, the shares became worthless but you continue to hold them.

You made a negligible value claim for the shares in your 2022 to 2023 tax return. This return is submitted in January 2024, and so the negligible value claim is treated as made in January 2024.

You specify in the claim that the shares became worthless in March 2023, you still own the shares now.

This is a competent negligible value claim.

Example 2

You subscribed £10,000 for ordinary shares in a company in 1998. In March 2023, the shares became worthless and so you donated them to charity in April 2023.

You made a negligible value claim for the shares in your 2022 to 2023 tax return. This return is submitted in December 2023, and so the negligible value claim is treated as made in December 2023.

Although you specify in the claim that the shares became worthless in March 2023 whilst they were still in your ownership, you no longer own them in December 2023 when the claim is made.

Your negligible value claim is not valid as you must still own the asset when you make the claim.

You cannot make a negligible value claim after the company has been dissolved. If the company has been dissolved, then you are automatically treated as having made a disposal of the shares at the time the company was dissolved. You are no longer the owner of the shares after the company has been dissolved and so you cannot make a negligible value claim.

A capital loss may result from a company in which you held shares being dissolved. You will need to make a calculation of that loss and send the calculation to us for the capital loss to be an allowable loss.

Example 3

You subscribed £10,000 for ordinary shares in a company in 1998. The company entered administration in August 2022 and the shares became worthless. The company was dissolved in November 2023, and so from this date you no longer own the shares.

You made a negligible value claim for the shares in your 2022 to 2023 tax return. This return was submitted in December 2023, and so the negligible value claim is treated as made in December 2023.

Although you specify in the claim that the shares became worthless in August 2022 whilst they were still in your ownership, you no longer own them in December 2023 when the claim is made.

Your negligible value claim is not valid as you must still own the asset when you make the claim.

Notifying HMRC of an allowable loss

A competent negligible value claim only creates a disposal for Capital Gains Tax purposes. If, as a result of such a disposal, there’s a capital loss, then you also need to notify us of the capital loss that results from that disposal for it to be an allowable loss. This is a separate claim from the negligible value claim.

You will need to let us know about that capital loss by making a calculation of that loss and sending the calculation to us. You can send the calculation with the negligible value claim.

If you are making the negligible value claim in your tax return, then you can also include the calculation of the loss with the return. Include the loss in boxes 7, 19, 27 or 35 of the Capital gains summary (SA108), as applicable, and use code ‘NVC’ in boxes 8, 20, 28 or 36, as applicable, and provide an accompanying computation.

If there are other transactions that are included in the same section of the Capital gains summary (SA108) pages and more than one code could apply to boxes 8, 20, 28 or 36, you should use code ‘MUL’ instead.

Checking the valuation of an asset

If you want us to check any valuation you’ve used in connection with that deemed disposal, you can include form CG34 with your negligible value claim. This will help you to calculate the loss which you will claim.

You must complete and send your application to the address on the form at least 3 months before your tax return filing date.

If you are making a negligible value claim for shares or securities, it is possible that the Shares and Assets Valuation Office will already have considered their value. That office publishes a negligible value agreements list of shares or securities formerly quoted on the London Stock Exchange, which have been officially declared of negligible value.

The negligible value list gives a tax year or a specific date at which the Shares and Assets Valuation Office has accepted that the share or security is of negligible value. It also shows if the company has since been struck off the Register of Companies and been dissolved.

Claim to set loss from share disposal against income

You may be able to reduce your Income Tax liability using relief for allowable capital losses provided certain conditions are met. The allowable capital losses must have arisen on a qualifying disposal of shares that you acquired by subscription in a qualifying trading company.

Qualifying disposals

The loss must have been made on a disposal by way of one of the following:

• a negligible value claim
• an arm’s length bargain
• a distribution made in the course of winding up the company
• the dissolution of the company

A gift of shares is not a qualifying disposal. The rest of this helpsheet explains the conditions that must be met and how to claim the relief.

Example 4

You subscribed £10,000 in 1995 for ordinary shares in a company making furniture. The business failed in August 2022, the shares becoming worthless.

You made a negligible value claim for the shares in September 2022 and claimed an allowable capital loss of £10,000 for 2022 to 2023 from the deemed disposal of the shares.

If all of the conditions for share loss relief are met, you may claim to set the allowable capital loss on the disposal of the shares against one of the following:

• chargeable gains in the normal way
• your income for 2022 to 2023
• your income for 2021 to 2022

In what type of company should I have subscribed for shares

If you claimed Enterprise Investment Scheme (EIS) Income Tax relief when you subscribed for the shares and that relief has not subsequently been withdrawn, the shares are treated as being in a qualifying trading company. Helpsheet 341 Enterprise Investment Scheme — Income Tax relief explains how to claim EIS Income Tax relief.

Otherwise, the company must satisfy a number of conditions. Some of the conditions differ depending on when the shares were issued to you.

If the shares were issued to you on or after 6 April 1998 then the company:

• must not have had gross assets whose value exceeded the limit in force when the shares were issued to you, find more information by reading the Gross assets rule section of this guidance.
• must not have had any of its shares listed on a recognised stock exchange when the shares were issued to you and there must have been no arrangements then for any of its shares to be listed on a recognised stock exchange — if shares in the company were subsequently listed on a recognised stock exchange, the company will still be a qualifying company provided that the date of listing was on or after 7 March 2001
• must not be a building society or a registered industrial and provident society
• must be a trading company, that is either a company:
  • that exists wholly for the purpose of carrying on one or more qualifying trades, apart from purposes incapable of having any significant effect on the extent of its activities, read the Trading companies that do not qualify section of this guidance
  • with one or more subsidiaries, provided the non-qualifying activities, such as investment activities or non-qualifying trades, of the group are not substantial — in this context, we generally regard anything amounting to more than about 20% as being substantial

If the shares were issued to you before 6 April 1998, then the company must:

• not have had any of its shares listed on a recognised stock exchange since it was incorporated (or one year before the shares were issued to you if that is later)
• not be a building society or a registered industrial and provident society
• be a trading company, that is either a company with:
  • a business that consisted wholly or mainly of the carrying on of a trade or trades, read the Trading companies that do not qualify section of this guidance
  • one or more subsidiaries with a business that consisted wholly or mainly in the carrying on of a trade or trades

The gross assets rule

The gross assets rule applies to shares issued to you on or after 6 April 1998. Where the shares were issued before 6 April 2006 the company’s gross assets, or the group’s where you hold shares in the parent company of a group, must not exceed £15 million immediately before, and £16 million immediately after, the issue.

For shares issued on or after 6 April 2006 the limits are £7 million and £8 million respectively. Read the following section for further details on trading companies that do not qualify.
The company or the trading group may have stopped trading before you disposed of the shares. You may still be entitled to relief if this happened no more than 3 years before the disposal. Read the Companies that have stopped trading section of this guidance for further details.

Trading companies that do not qualify

Companies carrying on some trades do not qualify. If the shares were issued to you on or after 6 April 1998, the company does not qualify if its trade:

• consisted wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments
• was not a qualifying trade for the purposes of the Enterprise Investment Scheme
• was not pursued on a commercial basis and in such a way that the trade would be reasonably expected to make a profit

If the shares were issued to you before 6 April 1998, the company does not qualify if its trade:

• consisted wholly or mainly of dealing in shares, securities, land, trades or commodity futures
• was not pursued on a commercial basis and in such a way that the trade would be reasonably expected to make a profit

Also, there is no relief for losses on shares in the holding company of a non-trading group.

How long must the company have been a trading company

If the company was a trading company when you disposed of the shares, it must satisfy either of the following conditions, it was a trading company throughout:

• the 6 years to the date of disposal
• its active existence if that is less than 6 years

If your shares are in the holding company of a trading group, the group business as a whole must satisfy these conditions.

Companies that have stopped trading

You’ll still qualify for relief if the company has stopped trading when you dispose of the shares as long as all the following conditions are satisfied:

• the company stopped trading no more than 3 years before the disposal
• the company has not started a non-qualifying activity such as investment or a non-qualifying trade
• at the date it stopped trading it satisfied the conditions set out in the previous section of this guidance

Share reorganisations or takeovers

If, as a result of a share exchange, the company in which you subscribed for shares becomes a wholly owned subsidiary of another company, the availability of loss relief against income will not be jeopardised, provided that the ownership of the new company is exactly the same as that of the old company.

In such a case, the 2 companies will be treated as if they were one and the same company for the purpose of determining whether relief is available on the disposal of your shares in the new company.

In any other case, if the shares you dispose of were issued in exchange for shares in another company, there are only limited circumstances in which relief against income may be available.

You may also hold shares that were acquired following a share reorganisation in a company. Helpsheet 285 Share reorganisations, company takeovers and Capital Gains Tax describes the general rules for Capital Gains Tax where there is a share reorganisation.

You may dispose of bonus shares which were issued to you without payment and for other shares you held in a company, being of the same class and carrying the same rights as those other shares. If so, then the bonus shares are treated as having been issued to you when the other shares were issued to you.

Where you acquire shares as part of a rights issue, the shares are acquired when they are issued to you. The time you acquired the shares is important for working out whether loss relief against income is due, for example, the gross assets rule.

If you have incurred an allowable capital loss on the disposal of shares which were issued to you in a reorganisation or in exchange for shares in another company, ask us or your tax adviser if you need more detailed information about the availability of relief against income.

Qualifying shares

The shares must not be fixed rate dividend preference shares and you must have subscribed for them individually, including subscriptions made jointly or through a nominee.

You will also be treated as having subscribed for any shares your spouse or civil partner subscribed for and transferred to you during their lifetime.

You will have subscribed for shares if they were issued to you by the company for money or money’s worth.

Calculating the allowable loss

If you claimed EIS Income Tax relief when you subscribed for the shares, the amount of Income Tax relief must be deducted from your loss.

Example 5

In 2003 you subscribed £10,000 for shares and claimed EIS Income Tax relief of £2,000 (£10,000 at 20%). In August 2022 the company fails and you make a negligible value claim. You can claim loss relief of £8,000 (£10,000 less £2,000).
Otherwise, you calculate the loss in exactly the same way as other allowable capital losses. If you subscribed for all the shares disposed of, all of the allowable loss is available for relief, but the total amount of Income Tax reliefs you can claim is limited to £50,000, or 25% of your income if that is greater.

This limit does not apply to losses on shares to which EIS or Seed Enterprise Investment Scheme (SEIS) relief is attributable. Helpsheet 204 Limit on Income Tax reliefs explains which reliefs are included in the limit.

You may have a holding of shares some of which you subscribed for and some of which you bought or acquired by gift or inheritance. Only the shares you subscribed for will qualify for relief. There are rules for determining what proportion of the allowable loss qualifies for relief. Ask your tax adviser or us for details.

Any part of the allowable loss that is not set against income remains an allowable loss to be deducted from chargeable gains. Any loss you use against your income is not available to use against capital gains.

If you claimed deferral relief when you subscribed for EIS shares the deferred gain is revived when you dispose of your EIS shares. Helpsheet 297 Capital Gains Tax and Enterprise Investment Scheme explains deferral relief and when deferred gains are revived.

How and when to claim the relief

The relief has to be claimed within one year of 31 January following the year in which the loss occurred. An allowable loss made in 2022 to 2023 therefore has to be claimed on or before 31 January 2025 to set loss from the share disposal against income.

If you make an allowable loss in 2022 to 2023 you can claim the relief for 2022 to 2023 or 2021 to 2022 or both.

This table explains how to make a claim.

Tax year	How to claim relief
2022 to 2023	You can claim the relief by making an entry in box 41 on page CG 2 of the SA108 Capital Gains Tax summary (2023) pages. You must also include the capital losses that are the subject of your claim in box 35 on page CG 2 and give details of the capital losses on page CG 3 in the ‘Any other information’ box, box 54 or in your computations.
2021 to 2022	You can claim the relief by making an entry in box 43 on page CG2 of the SA108 Capital Gains Tax summary (2023) pages. You must: • include the capital losses that are the subject of your claim in box 35 on page CG 2 • give details of the capital losses on page CG3 in the ‘Any other information’ box, box 54 or in your computations • calculate the difference between the actual liability for 2021 to 2022 and the liability that would have arisen if the relief you’re now claiming had been included in the 2021 to 2022 tax return • enter the difference, that’s the decrease in tax due, in box 15 on page TC 2 of the SA110 Tax calculation summary (2022) pages

If you claim Income Tax relief for a capital loss, you cannot also set the losses against capital gains.

If you made an allowable loss in 2021 to 2022, you have until 31 January 2024 to claim relief against your income of 2021 to 2022 or 2020 to 2021 by amending your 2021 to 2022 tax return.

When you make the claim, you must ensure that you include sufficient information about the claim within the tax return. As a minimum this must include:

• the name of the company that issued the shares
• the company registration number (or overseas equivalent) of the company that issued the shares
• the country of incorporation of the company that issued the shares
• the country of tax residency of the company that issued the shares (if different to the country of incorporation)
• the date when the allowable loss arose
• if the relief is being claimed for multiple tax years, a statement of the tax year for which the deduction is to be made first

How the relief is given

The relief is given by deducting the allowable loss from your total income from all sources, before any deduction for your personal Income Tax allowances. This means you cannot restrict the claim to leave your income equal to your personal Income Tax allowances.

You may claim that the loss be set against your income of the year in which the loss arose or against your income of the preceding year. If the loss is sufficiently large, you may claim that it be set against the income of both years. If you claim for both years, your claim should show which year is to take priority.

If there is still a balance of unused capital loss, it can be deducted from chargeable gains in the usual way.

An allowable capital loss made in 2022 to 2023 can be claimed against your income in 2022 to 2023 or 2021 to 2022 or both years depending on the amount of your income and losses.

Example 6

In 1995 you subscribed £50,000 for ordinary shares in a trading company.

In September 2022 the company fails and you make a negligible value claim for 2022 to 2023. You have an allowable loss of £50,000.

Your income and Income Tax personal allowances for 2021 to 2022 and 2022 to 2023 are shown in this table.

Tax year	2021 to 2022	2022 to 2023
Income	£40,000	£32,000
Personal allowances	£12,570	£12,570

You may claim that the allowable loss on the shares be set against your income for 2022 to 2023 and any balance against your income for 2021 to 2022. This will be the relief given.

Calculation	2021 to 2022	2022 to 2023
Income	£40,000	£32,000
Minus loss	£18,000	£32,000
Income left	£22,000	zero
Minus personal allowances	£12,570	—
Taxable income	£9,430	—

Please bear in mind that the allowable loss on the shares used in 2021 to 2022 cannot be restricted to preserve your personal allowances. Alternatively, you may claim £40,000 against your 2021 to 2022 income and, if you want, £10,000 in 2022 to 2023.

There’s an order of priority if you’re also claiming a deduction for other losses.

In 2022 to 2023 this is:

• first, allowable capital losses on shares disposed of during 2022 to 2023
• second, allowable capital losses on shares carried back from 2023 to 2024
• third, other Income Tax losses

For losses made in 2013 to 2014 onwards, the total of all Income Tax losses which can be claimed against a year’s income is limited to £50,000, or 25% of that income if greater.

This limit does not apply to losses on shares to which EIS or SEIS relief is attributable. Helpsheet 204 Limit on Income Tax reliefs (2023) explains which reliefs are included in the limit.

Any allowable capital losses on shares not set against your income can be deducted from chargeable gains in the usual way.

Get more information

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