Occasionally, the tax system in the UK throws up an issue that does not make sense. For example, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?
After all, CGT applies when an asset subject to CGT is sold or otherwise disposed. If you sell an asset for more than you acquire it you make a gain for CGT purposes and if you dispose of an asset for less that you paid for it then you make a loss for CGT purposes.
So far, so good…
What if you own shares in a quoted company that are currently worth much less than you paid for them? You may consider that there is a possibility – perhaps a remote possibility – that the share price will recover in which case you may want to keep the shares.
But what if the present value of the shares means you are sitting on a significant CGT tax loss, a tax loss that you may be able to utilise against other chargeable gains?
Which brings us back to the opening comment of this post, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?
The answer in to make what is called a Negligible Value Claim. This what HMRC offer in guidance on this topic:
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.
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.
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. That time will be after the year to which the tax return relates.
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 that are explained above.
If, by chance, you have a shareholding in your portfolio that is of no real value and you could utilise any CGT loss to good advantage, please get in touch and we will help you submit a formal claim to HMRC.