Do you have ‘worthless assets’?
If you own something that has become effectively worthless, in certain circumstances you can obtain capital gains tax (and occasionally income tax) relief for your loss in value by making a “Negligible Value” claim.
The basic starting point for a Negligible Value claim is that the asset concerned must be chargeable to capital gains tax were it to have been sold at a profit (so instantly cars are eliminated from this relief as otherwise nearly every motorist in the country would have an almost unending supply of capital losses) and you must be able to prove to HMRC that the asset has become of no value. (This would also apply if the asset has become lost, destroyed or extinguished but you should take note of any compensation received.) Broadly, Negligible Value claims can be made by companies and trusts as well as by individuals, but there is an interaction with Capital Allowances where business use is concerned.
The claim works by allowing you to “sell” the asset for no proceeds (even if there is now no market or purchaser for it) and then immediately reacquire it for its current value, thus triggering the capital loss.
To make a claim, the taxpayer must own the item at the time of the claim, state the value of the asset at the time of the claim and it must be in existence. This can cause an issue with company shares as after dissolution, the company ceases to exist and, by extension, so do its shares. If you still hold shares at the date of dissolution – and have not made a Negligible Value Claim to apply before that point – the shares are treated as having been sold for zero value at that point. It is, however, possible to back date a Negligible Value claim up to two tax years provided that the asset was of no value at that earlier time and the taxpayer owned it at that point.
For shares that are traded on a stock exchange, HMRC maintain a list of shares that they have already agreed are of negligible value and for these no further evidence (except perhaps of ownership) is needed. The list is held on the .Gov website and is updated frequently. For example, were you to look up Marconi plc (remember them?), you will see that HMRC agreed that the shares became of negligible value on 19 May 2003, but the company has yet to be dissolved. Therefore, you can claim for relief in any in-date tax year. Shares in Globo plc, by contrast, were agreed to be of negligible value on 10 November 2015 but the company was dissolved on 29 January 2017 and so you are still just in time to make a backdated claim for either Negligible Value or general capital loss relief on these shares, but time is running out.
There is nothing to prevent a Negligible Value claim for shares that have not yet appeared on the HMRC listing but you will need to be prepared to provide supporting evidence to convince the Inspector of Taxes that the shares are of no value as at the date of the claim. You should remember the fact that a company may have ceased trading does not automatically mean that it has no assets and therefore no value. If you do make a Negligible Value claim, obtain relief, and later do receive some value (for example a distribution on final winding up), this is taxed as if you had purchased the asset for no value.
In some more restricted circumstances, Negligible Value relief can also create an income tax loss. There are various additional rules attached to this, but the principal ones are that if the shares are not Enterprise Scheme qualifying, they must have been subscribed for at issue; must have been in a qualifying trading company (which is trading wholly or mainly in the UK) for six years and have not at any stage been listed on any recognised stock exchange.
Usually, unless you are making a claim for income tax relief, the Negligible Value claim results in a useful loss for Capital Gains Tax purposes. You should take care about deciding when to make a claim so that you do not unnecessarily waste the loss. Using the Marconi shares as an example, were you have a potential loss of £1,000, you should consider not making a claim when your other capital gains total, say, £5,000, as that amount would be covered by your annual CGT allowance anyway (and by making a claim, you would only reduce the total gains to £4,000 which is still covered by the same exemption). Instead, you should make the claim in a year when you either have gains above the annual CGT exemption, or in a year where relief will create or increase a capital loss which can then be carried forward and used later. Obviously, the date of dissolution of Marconi (when it comes) will force the issue of when you are deemed to dispose of the shares so it is worth reviewing matters now.
Land, of course, always has an underlying value (unless it has fallen into the North Sea) even if you are successful in claiming for the destruction of a building on it.
So bad, news for CGT exempt motorists (except if you have a classic car which is then capital gains tax free on any profit), but a glimmer of relief for those whose shares have become worthless for whatever reason.