In the News
WORTHLESS ASSETS – MAYBE NOT!
The general rule
If you own an asset that now has only negligible value (that is, it is now essentially worth nothing) then you can claim the capital loss on your Tax Return. This is known as a Negligible Value Claim. When making a Negligible Value Claim you are treated as disposing of the asset either on the date of the claim or, if you wish, on an earlier date indicated on the claim. The earlier date must fall within two years before the tax year in which the claim is made, and the asset must have been of negligible value on that earlier date (whether or not it was of negligible value before then).
How can capital losses be utilised?
Capital losses can only be set off against any capital gains (not income) of the year of the claim or carried forward (indefinitely) to set against future capital gains. Losses brought forward are utilised only so far as necessary to reduce a capital gain to the annual exempt amount. For 2008/2009 an individual’s capital gains annual exemption is £9,600.
Special rules for worthless shares in a UK trading company
In certain circumstances where the shares are in an unquoted UK trading company, having become worthless, it is possible to set the loss set against income. If the shares were acquired by subscription (shares bought from a third party will not qualify) relief may be claimed instead against any other income of the tax year of the loss or of the previous tax year. If you are a higher-rate taxpayer then this means that you could be entitled to a tax reimbursement equivalent to as much as 40% of your loss. This loss is not then available to set against capital gains. This process is of particular use to owners of failed companies who have subscribed for their shares. When considering making a claim for a tax refund on these grounds, the first step is to ascertain exactly how large a capital loss you have suffered. Providing all the criteria are met, you can claim for the loss on the shares to be set against you income. If the loss is not available to set against your income it can be set against capital gains as described above.
Capital loss in respect of irrecoverable loans to a business
If you’ve made a loan to a business which can’t repay it, you might be able to claim a capital loss on this too. The loan will qualify for loss relief as long as it was used by the borrower (who can’t be your spouse) in their trade and H M Revenue & Customs can satisfy themselves that the loan is irrecoverable. The relief is due only when a claim is made, but in practice HMRC permits claims to be made within two years of the year of assessment that you are claiming the loss relief for.
Capital loss in respect of payments made under guarantee
If you have acted as a guarantor in respect of a loan to a trader and are required to repay the loan and/or interest under the guarantee you may claim an allowable capital loss. The relief is due only when a claim is made, but in practice HMRC permits claims to be made within two years of the year of assessment that you are claiming the loss relief for.
If you believe that you are affected by any of the issues raised above and would like to discuss them further please contact Patrick Lydon on 01204 534031 or email patrick@warings.co.uk
6th January 2009