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Choosing when to claim a capital loss

Where you own shares in a company, whether it's a plc or a family run business, and it hits hard times, these might have little or no value. In this case you can claim a loss against any capital gains you've made. But can you allocate it to whichever year you like?

Falling value equals tax opportunity

The value of many shares has fallen in the economic downturn. But depressed values present an opportunity to carry out transactions that you considered before but put off because of the high CGT costs. Not only that, it offers a chance for some retrospective tax saving.

Negligible value mechanics

If you own an asset, say shares, which have become nearly worthless, you can ask the Taxman to treat them as though they had been sold for nothing, and immediately re-acquired at no cost. This creates a tax loss.

Example. In 2006 you bought 1,000 shares in Duff Ltd. They cost you £10,000 in total. The company has fallen on hard times and now you reckon that even if you could find a buyer you'd get virtually nothing for them. The shares are therefore of negligible value (NV) and you can submit a claim to the Taxman to treat them as if you sold them for nothing. The £10,000 you paid for the shares is a CGT loss.

Earlier years

If the shares in question had a negligible value at any time during the past two years, you can backdate your claim. The two-year backdating applies from the date the Taxman receives your claim. So if, for example, you owned some shares in a company that went bust in April 2011, but is still being wound up, its shares probably had a negligible value then, and now. You can send a claim to the Taxman for NV treatment to apply at a date you choose back to April 2011. You can use the loss to reduce your CGT bill for 2011/12 or the current tax year. It's up to you!

Tip 1. The NV rules don't only apply to companies that are being wound-up. Actually, HMRC regularly updates and publishes a helpful, but sadly rather long, list of companies for which he has agreed NV.

Tip 2. NV claims aren't just for quoted companies, or those destined for liquidation. It could be a family company, for instance. If current trading pressures have meant that it's used up capital and profits accumulated in earlier years, and there's no sign of a recovery at the moment, a claim can still be made.

Tip 3. Target your NV claim first against a year for which CGT was paid. You'll cut your tax bill by doing this. Then do it against a year when you have no gains at all. That will create a capital loss which can be carried forward and used to cut a CGT bill in later years.

How to make a claim

A claim can be made on your tax return using the additional information space on the form, or just in a letter. Either way, the wording of the claim should be the same. We recommend using a letter as HMRC has a tendency to overlook information included in the additional information section of returns.

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