In a recent FTT case, Barker and Others TC 01487, shares were found to be of negligible value where they had no “market value”. The facts of the case are complex but in essence the taxpayers claimed that shares were of negligible value one year before the company went into creditors’ voluntary liquidation but just over three months after investing funds into the company. HMRC rejected the claim on the basis that the shares were not worth “next to nothing” in April 2001 and they had difficulty in seeing how £330 could be paid for a share in December 2000 and that same share became of negligible value in April 2001. The taxpayers’ negligible value claims were upheld by the tribunal.
What can practitioners learn from this case?
Where negligible value claims concern unquoted shares the taxpayer needs to prove that the shares are not saleable on the open market. Section 24 TCGA 1992 allows a claim to be related back up to two years and this can be valuable when coupled with s131 ITA 2007 share loss relief. Under s131 ITA 2007 a taxpayer can set the loss against income where it arises from unquoted shares (subject to some conditions).
This FTT Tribunal Decision highlights some of the issues concerned with establishing if shares have a negligible value. It highlights the information which is looked at in assessing the likelihood that a company will recover from an insolvent position. In this Decision, the shares were accepted as being of negligible value because, taking into account the information that would have been available to a prospective purchaser, the shares would have been unsaleable.
Negligible value claims should be considered in cases where private companies are in difficulty or heading towards liquidation. The taxpayer may benefit from making an earlier claim so the loss can be used against income in a year when the taxpayer has income. In many cases the capital loss is of little use to the shareholder as they may have no gains whereas a loss to use against income can provide valuable cash.