Claiming loss relief on a share disposal.
We've previously discussed shares and negligible value claims. However by claiming loss relief on a share disposal you can also reduce your income tax liability. This post discusses the circumstances where it's possible to make a valid claim.
When claiming loss relief on a share disposal, you will need to consider the circumstances in which the loss arose. Equally important is that a loss on a share disposal qualifies for capital gains tax loss relief, before considering whether income tax loss relief applies.
.A share disposal, qualifies for capital gains tax loss relief in the following circumstances:
What's more, relief is restricted where the loss arises as result of a company's reconstruction for capital gains tax purposes.
Shares - qualifying conditions required
To claim income tax loss relief, you must ensure the shares fulfil one of the following qualifying conditions:
Additionally, shares in a trading company includes stock, though does not include shares or stock which do not form part of a company's ordinary share capital.
Qualifying trading company
The definition of a qualifying trading company is set out in the taxes legislation and HMRC's guidance. Additionally, the taxes legislation was amended in 2020 so that non-UK companies can potentially qualify.
Amount of relief available
A claim for share loss relief is limited to the higher of £50,000 or 25% of your adjusted net income. However, the restriction does not apply to losses arising from investments in EIS or SEIS qualifying shares.
Conditions applied to individuals
To qualify for relief you must have subscribed for the shares. However they can have been subscribed for by your spouse or civil partner and transferred to you. Also a subscription may be made by a nominee on your behalf or on behalf of joint owners.
To subscribe is defined as meaning the shares are issued by the company in consideration for money or money's worth.
HMRC have argued that relief is not available for jointly-owned shares. However, they have now confirmed a policy change which means that for joint owners Income Tax relief is divided equally between the joint owners.
Share for share exchanges
Occasionally, shares are acquired as a result of a share for share exchange. Typically this happens when one company buys out or takes over another company. So, in this situation, you're treated as if you subscribed for shares in the new company.
To claim relief, firstly the shares in the old company must have qualified if EIS relief had been claimed on them. Secondly, the shares in the new company must also have qualified for share loss relief if acquired by subscription.
If shares in the new company do not qualify then relief is restricted to the amount of consideration received on exchanging shares in the new company. However, your loss will potentially be restricted to the subscription price of the shares in the old company. Therefore, in practice this may be considerably lower than the shares when they are valued on a company takeover.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.