UK: Negligible Value Claims (Individuals)


This briefing note summarises some of the points to consider when making negligible value claims for capital gains tax (CGT) and income tax loss relief. It considers loss relief on shares in particular and briefly discusses goodwill, loans and land.

The Relief

Capital Gains Tax

Under TCGA92 s24, an owner of an asset that has become of negligible value can make a claim for the asset to be treated as immediately sold and re-acquired for tax purposes either at the time of the claim, or at an earlier time specified in the claim, so as to crystallise a CGT loss. Where an earlier time is specified, the conditions for making such a claim require that the claimant owned the asset at the earlier time and the asset had become of negligible value at that time.

For individuals the earlier time is not more than two years before the beginning of the year of assessment in which the claim is made. For example a claim can be made in 2010/11 (e.g. on 5 April 2011) for an asset owned in the tax year 2008/09 that became of negligible value in 2008/09 (e.g. on 6 April 2008).

A loss on an asset which has been acquired through a no gain/no loss transaction (for example for transfers between husband and wife TCGA92 s58) may qualify, provided the person from whom the asset was acquired previously owned the asset at a non-negligible value.

Income Tax

Where an individual is treated as disposing of 'qualifying shares' (see below) and realises a CGT loss, then the individual may claim income tax relief, described in ITA07 s131 as "share loss relief". In accordance with ITA07 s132 that loss may be set against net income in any of:

  • the year of loss;
  • the previous tax year;
  • both the above tax years (in which case the claim must specify which year is to be the first year of claim).

A CGT loss on qualifying shares could result from an actual disposal, or a deemed disposal under TCGA92 s24 as described above. The loss does not become a trading loss and therefore is not subject to the temporary three year carry back provisions for trading losses as provided in Finance Act 2009 Sch 6. However, it may use up available profits of a year such that it is not possible to make a sideways loss relief claim under ITA07 s64 on actual trading losses with the result that an extended three year loss relief claim can then be made on those losses.

The claim for share loss relief must be made in writing within 12 months of 31 January following the tax year in which the loss is made.

Qualifying Shares for share loss relief

For income tax relief under ITA07 s131-151 the shares must either be:

  • ordinary shares on which EIS relief has been claimed, or
  • ordinary shares in a qualifying trading company which the claimant has subscribed for (note pre-existing shares which were subsequently purchased by the individual would not qualify).

The relief will not be available where the shares were subject to an exchange or arrangement under the company reconstruction rules of TCGA92 s135-136 where TCGA92 s137 applies (i.e. the individual has a 5% holding or less in the shares and the transaction is not for bona fide commercial purposes or is part of a scheme for which the main purpose was the avoidance of CGT).

Shares are regarded as subscribed for where they have been issued by the issuing company for money or money's worth. In relation to an individual the shares are treated as subscribed for if they had been transferred from a spouse (or from 5 December 2005 a civil partner) and it was the spouse/partner who had originally subscribed for them. For the spouse/partner condition to apply, the spouse/partner must be living with the recipient at the time of transfer.

Shares in a qualifying trading company must meet the following conditions:

(i) At the date of disposal the company disposed of :

  • is a trading company (ignoring any incidental activities), or is the holding company of a qualifying trading group;
  • must not control a non-qualifying subsidiary company;
  • any subsidiary companies must be 51% subsidiaries over which no-one else has control;
  • any property managing subsidiary is owned to the extent of 90%.

(ii) The company has met the conditions listed in the first bullet point for a continuous period of six years ending on the date of disposal, or has done so for a shorter period without previously being an excluded investment or trading company.

(iii) The company must meet the gross asset and unquoted tests. Gross assets must not be more than £7m before share issue and not more than £8m afterwards, at the time the shares were issued. The unquoted test is met if the shares were unquoted at the time of issue and there were no arrangements for the company to become a quoted company.

(iv) The company carried on its business in the UK throughout the period

  • since incorporation or, if later, 12 months before the shares were issued and
  • ending with the date of disposal.

A company is not regarded as having failed the 'trading company' condition merely because of anything done in consequence of administration or receivership. There are further provisions where there have been exchanges of shares in relation to the investee company, subject to anti-avoidance.

For shares which have been subject to a share for share exchange and on which EIS relief has not been claimed, the exchanged shares must have been issued after 5 April 1998 and the old shares must have been entirely exchanged for new shares of a corresponding description. Rules for meeting the qualifying trading company conditions (conditions (i) to (iv)) have changed for shares issued before and after 6 April 2007, 6 March 2001, 6 April 1998 and reference should be made to the legislation relevant at the time of original acquisition.

A trade for this purpose is one which is carried on on a commercial basis with a view to the realisation of profits and which does not consist, wholly or substantially, of excluded activities. Excluded activities are listed in ITA07 s192 and include activities such as dealing in land, property development, legal or accountancy services, leasing, farming or market gardening, amongst others.


Negligible value claims may be made in respect of goodwill relating to unincorporated businesses and will normally apply where goodwill has been disposed of for less than its acquisition cost or its value on 31 March 1982. HMRC set out their view of whether goodwill has become of negligible value in paragraph CG68080 of its CG Manual:

"The fact that goodwill has been written off in the accounts of a business does not necessarily mean that its value has become negligible. The question is whether the facts show that the goodwill of the business as a whole has any value at the date of the claim. A claim under TCGA92/S24 (2) will not succeed unless the facts show that the valuable goodwill of a business has subsequently become of negligible value."

In order for an individual partner to claim that their interest in goodwill has become of negligible value it will be necessary to show that the goodwill of the partnership as a whole has become of negligible value. Any provision for the payment of an annuity or a pension to a retired partner (or to a widow or widower where the partner died in service) is regarded as the purchase of the partner's share in goodwill.

Loan to a trader

Debts which are not debts on a security do not give rise to chargeable gains in the hands of the original creditor by virtue of TCGA92 s251.

However, under TCGA92 s253 loss relief is available where a qualifying loan has become irrecoverable otherwise than under the express terms of the loan arrangements or by way of any act or omission by the lender.

To qualify for relief the loan must have been of money and

  • must have been made, on or after 12 April 1978, to a borrower resident in the UK;
  • must have been used wholly for the purposes of the borrower's trade, or, provided that the trade is actually carried on subsequently, for the purposes of setting it up. Loans made where the borrower never commences a trade will not qualify;
  • the loan is not taken into account for Income Tax purposes;
  • the loan has not been assigned;
  • the loan has become irrecoverable other than as a consequence of:
    • the terms of the loan, or
    • arrangements of which the loan forms part, or
    • any act or omission by the lender,
  • the loan is not between spouses or civil partners, or between individuals who subsequently became spouses or civil partners prior to the date of the claim. For this purpose, spouse means a husband and wife living together and civil partner means civil partners of each other living together.

The reference to trade includes a profession or vocation, but does not include a trade which consists of, or includes, the lending of money.

The outstanding amount of the principal of the loan must have become irrecoverable. Thus if the loan has been satisfied, for example by the issue of shares or securities, HMRC will take the view that no relief will be due even though the shares themselves may be worthless.

If there is an outstanding amount of the principal of the loan which has become irrecoverable prior to the claim, the fact that the loan has then been waived before the claim is made will not preclude relief. In Crosby v. Broadhurst (SpC416) the Commissioners said: "We see nothing in the statutory words to support the view that the accident of waiving a loan, and not for reasons which come within subsection (12), before rather than after a claim is made disqualifies the lender from the relief."


The relief given to an individual who makes a loan to a trader is extended to a guarantor of a qualifying loan who has made a payment under the guarantee to the lender or a co-guarantor. The claimant is regarded as having made an allowable loss when the payment was made. There is however no facility for backdating the claim to an earlier date.

The guarantor must not have assigned any rights to recovery and the guarantor and borrower must not have been spouses or civil partners between the time of giving the guarantee and the date of claim.

Land and Buildings

Where a negligible value claim is made in respect of buildings, the building and the site on which it stands are treated as separate assets. Where such a claim is made, however, then the interest in the site on which the building stands is treated as sold and reacquired at market value under TCGA92 s24(3). As the land is not treated as a new asset for the purposes of roll over relief, there is no possibility of rolling any gain on the land into its CGT cost going forward. Any demolition costs incurred in removing a building, however, can be set off against any gain due on the deemed disposal of the land. Where the gain in the land exceeds the loss on the building, however, it may not be in the taxpayer's interest to make a negligible value claim in respect of the building.

Practicalities of determining negligible values

'Negligible' is not defined in the Taxes Acts but HMRC take the view that it means next to nothing (CG13124).

A claim for unquoted shares which have become of negligible value will be referred to Shares and Assets Valuation unless the negligible value claim is under £100k, relates to an UK registered non-plc company and either has ceased trading and has no assets, or is in insolvent liquidation.

Value has become negligible

In order to claim relief under TCGA92 s24 it will be necessary to demonstrate that the value has become of negligible value. This means that if the asset was worthless when it was acquired, it cannot have become of negligible value and consequently no relief will be available. For example Mr A has lent £50,000 to a trading company B Ltd, but the company is in difficulty and is unable to repay the loan. B Ltd issues new shares with a par value of £50,000 to Mr A in exchange for the loan. Mr A subsequently claims relief under TCGA92 s24 and ITA07 s131 on the basis that the shares are worthless. Unfortunately no income tax or CGT loss relief will be due for the shares as the loan had no value at the date of exchange and so therefore the base cost of the shares is nil.

In the case of Director v Inspector of Taxes (SpC161 1998) a negligible value claim was refused on the grounds that the shares in question had a nil acquisition cost by virtue of s17 and thus could not have become of negligible value.

HMRC will look carefully at cases where an individual subscribes for further shares shortly before the date on which the shares are claimed to have become of negligible value in order to ensure that the price paid can be justified under the market value rule.

Care will need to be taken where there has been a series of loans over a period of time and some loans have been made after the date on which earlier loans are said to have become irrecoverable. In such cases HMRC may argue that unless there was a significant improvement in the borrower's prospects after the date on which the earlier loans were claimed to have become irrecoverable then the subsequent loans will not have become irrecoverable as they would have been effectively worthless as soon as made.


When considering negligible value claims, the anti-avoidance provisions on value shifting should be considered. Also TCGA92 s17 may require market value to be applied where disposals are not made at arms length - this is likely to be the case where connected parties are involved (TCGA92 s18).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Mannion
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