Muras Matters: Negligible Value Claims

Negligible Value Claims

Background

Negligible value claims can be a valuable relief which is often easy to overlook. Taxpayers who own assets that have become worthless can make a negligible value claim to reduce their tax liability.

Shares are a good example of assets which can easily become worthless, as the collapse of Carillion earlier this year has highlighted. As a result of Carillion going into liquidation, HM Revenue & Customs (‘HMRC’) have added Carillion to their list of shares declared to be of negligible value, and any holders of shares in Carillion should now consider making a negligible value claim on their 2017/18 tax return.

Detail

When a taxpayer owns an asset which has become of negligible value, they can make a claim for the asset to be treated as if it had been sold for its current market value, which is usually zero, and immediately reacquired for the same value, zero, at the time the claim is made. Making a claim for negligible value relief will give rise to a capital loss for that asset which can then be set against other capital gains arising in the same tax year, and any surplus loss can be carried forward against any future capital gains that may arise.

Negligible value is not defined in statue, but HMRC consider an asset is of negligible value if it is worth next to nothing. For shares, HMRC’s Shares and Valuation Office maintains a list on line updated monthly, of shares formerly quoted on the London Stock Exchange that have been declared of negligible value. Once a company’s shares are added to the list, a taxpayer can make a negligible value claim, with the value of the shares deemed to be nil.

In order to make a negligible value claim, the taxpayer must own the asset at the time of the claim. Therefore, in relation to shares in a company, the company must still be in existence at the time of the claim. If a company has been dissolved, the shares effectively cease to exist and so can no longer be considered to be owned by the taxpayer, and as a result no negligible value claim can be made. It is therefore very important that any holders of Carillion shares make the relevant claim before the liquidation process ends and the company is formally dissolved.

Whilst this relief is likely to mainly be of benefit to individuals, the legislation does allow for companies to also make negligible value claims on chargeable assets.

If you own shares in Carillion, or have any other assets which you consider may be or likely to become of negligible value, and would like any advice or assistance in making a negligible value claim, or alternatively would like to discuss any of the issues above then please contact our Tax Director Jenny Marks.

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