Tax relief on failed investments

Following the recent news that Toys R Us has filed for bankruptcy protection in the US and Canada, it is worth pointing out that there are a number of reliefs available to individuals owning shares in a company that is in financial difficulty, said Rebecca Goldring, manager at Blick Rothenberg.

Tax relief on failed investments

If an individual owns shares in a company that is liquidated, it is likely that the liquidation proceeds, less the acquisition cost, will result in an overall loss for Capital Gains Tax purposes. If this occurs, losses can be offset against the capital gains of the same year and any unused losses may be carried forward.

However, in some circumstances, if it can be demonstrated to HMRC that the company is worthless, even before it is liquidated a capital loss might be claimed on the basis that the shares have become of negligible value. A claim for negligible value is not automatic and individuals must ensure that they still own the shares at the time of making the claim.

For those shares formerly quoted on the London Stock Exchange, HMRC’s Shares and Assets Valuation Office has a published list of those they recognise as worthless. If a claim is successful then relief for Capital Gains Tax purposes of up to 28% could be available.

As an alternative to claiming a capital loss, it is possible to apply for Income Tax share loss relief, which will provide Income Tax relief of up to 45%. To qualify, the individual must have made an allowable loss for Capital Gains Tax purposes. Furthermore, the shares must either meet the requirements for Enterprise Investment Scheme relief or be subscribed shares in a trading company that is eligible.

There is a window of opportunity to make such a claim of 1 year from the 31st January following the year in which the loss is made. So if an allowable loss is made in 2016/2017 you have until 31 January 2019 by way of example. Therefore it is important not to delay.

The reliefs apply only for shares from UK trading companies; overseas shares would not qualify.

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