Following the reduction to the capital gains tax (CGT) annual exempt amount, from £12,300 in 2022/23, to £6,000 in 2023/24 and £3,000 from 6 April 2024, it’s important to not only recognise and report your taxable capital gains to HMRC, but also claim your capital losses.
Failing to claim capital losses before the appropriate deadline can result in them being lost.
Capital losses are automatically offset against capital gains of the same tax year, any loss that remains is carried forward for offset against capital gains of future tax years.
In a tax year, where you have current year and brought forward losses, the current year losses are offset against gains first. Any gain remaining will then be reduced by available brought forward losses to the point that they reduce the capital gains to the annual exempt amount.
How and when to claim capital losses
For a capital loss to be allowable it must be notified to HMRC in a quantified amount.
For individual’s filing tax returns, that notification can be included within the tax return for the year that the loss is realised.
For taxpayers not within Self Assessment, or where a capital loss was omitted from a tax return, a standalone claim can be submitted in writing to HMRC.
The deadline to claim a capital loss is four years from the end of the tax year, i.e. 5 April, that the loss was realised.
Losses are usually realised when an asset is sold or liquidated, but capital losses can also be claimed in respect of assets which are still held but have become of negligible value.
What is a Negligible Value Claim?
Where an asset is lost, destroyed or becomes of ‘negligible value’, HMRC accept that you can claim a capital loss on the asset without disposing of it. Once a successful Negligible Value Claim has been made, the asset is treated as being sold and reacquired at its market value, thereby realising a loss for capital gains tax purposes which can be set against gains of the same tax year, with any balance being carried forward for use in later tax years.
HMRC consider an asset to be of negligible value where the asset is worth ‘next to nothing’, which is an absolute measure rather than a relative one. For example, if an investor purchased shares in a company for £1m and the value subsequently fell to £2,000, it is unlikely that HMRC would view the shares to be of negligible value and hence a claim would not be appropriate in these circumstances.
The claim allows the taxpayer to crystalise a loss (and the associated tax relief) whilst retaining ownership of the asset.
Making a Negligible Value Claim
To make a claim, HMRC require that you are the owner of the asset and that it became of negligible value whilst you owned it, i.e., it was not already of negligible value when you acquired it.
A claim can be made on your tax return or by writing to HMRC. The deemed date of disposal is usually in the tax year that the claim is made, although it can be backdated up to two tax years, as long as the asset had been owned in that year and was already of negligible value at that earlier date.
For listed companies, HMRC publishes a list of shares that it considers to be of negligible value. This list can be found here.
Share loss relief
A Negligible Value Claim on certain trading company shares can trigger the availability of share loss relief, which allows for the capital loss to be offset against your income tax liability, potentially yielding a greater rate of tax relief.
In order for the relief to be available there are a number of conditions which must be satisfied in relation to the company that issued the shares, and these vary depending on when the investment was made. The key conditions, in broad terms, include:
- The shares must have been subscribed for, i.e., issued by the company directly to the claimant, rather than acquired for a previous owner.
- The company whose shares are giving rise to the loss must be unquoted and below a certain size at the time the shares were issued. It must be a trading company, or if it has ceased to trade there are further rules to consider.
- The shares must not be fixed rate dividend preference shares.
Shares on which EIS income tax relief has been claimed are automatically eligible for share loss relief. There is no such automatic entitlement for shares to which SEIS relief is attributable, but relief is available if the necessary conditions are satisfied.
The allowable loss on EIS/SEIS shares is reduced by the previously claimed SEIS or EIS income tax relief.
Claims for share loss relief are subject to the annual limit on income tax relief limit (being the greater of £50,000 or 25% of “adjusted total income”) except where the claim relates to EIS or SEIS shares, when the annual limit does not apply.
Share loss relief is not only relevant to negligible value claims and can apply in other situations, including on an arm’s length disposal or a distribution on the winding up of a company.
If you would like more guidance or assistance with your capital gains tax reporting requirements, including advice on whether you are eligible to make a negligible value or share loss relief claim, get in touch.
