Negligible Value Claims and EIS Relief

tg99

Hi,

I had a share holding in an unquoted EIS company that was dissolved a few weeks ago. Although I can therefore claim loss relief against income this tax year or the year previous, it would actually be better for me to claim in year 15-16 as for 16-17 (and likely 17-18) I will have no spare income tax to use up against the loss. The only way I could do this is by first making a negligible value claim (NVC) for the shares given you can carry this back so I could make the NVC as at say 5 April 17 (as the shares I believe had become worthless already by then) and then I could thus make my claim for income tax relief in 15-16.

However, my understanding is that since the company has already been dissolved then I can no longer actually make a NVC as the asset is deemed to have been disposed of at the date of dissolution thus being in the 17-18 tax year. Is anyone aware of any way around this, i.e. any way of justifying to HMRC why I wasn't able to make the NVC before the company was dissolved? I've not yet filed my 16-17 tax return but presumably if I claimed it as a NVC in that return the NVC claim date would still be deemed to be the date the tax return was submitted so still after the date of dissolution?

There is also one other company in a similar situation that has been written down to zero but is currently active but with a proposal to be wound down next month. Given it has therefore not yet been dissolved I am presuming I can still make a valid NVC for this one (and thus be able to use against 15-16 income given the company had become worthless towards end of 16-17 tax year so could carry back)?

A couple of other related questions:

- my understanding is that although these two companies have been held for less than 3 years I will not lose EIS tax reliefs as the shares have become worthless. I think this applies whether the company gets dissolved or I make a NVC?

- for the first company above, if I am unable to find a way round the NVC issue then I could use as a loss against capital gains this tax year. However, if all my net gains this year before taking account of this loss fall within the annual CGT allowance, can I instead carry it forward to use in a future year of my choosing rather than waste it for nothing this year? And does the same apply even if my net gains do exceed the allowance, e.g, even if my net gains in 17-18 were say £15k could I still carry it forward to use in a few years time instead (rationale being that I may have a big gain in due course when sell a property thus incurring the 28% top rate)?

Thanks.

jimmo

Your understanding is correct. One of the conditions of making an NVC is that you must own the shares at the time of making the claim. As company has been dissolved you no longer own the shares and cannot claim.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg13125

Certainly in my days as a taxman there was no way around that. Whilst I seriously doubt that you can use it there is now Overpayment Relief. I claim no expertise because it came in after I retired but the manual is here.
https://www.gov.uk/hmrc-internal-manuals/self-assessment-claims-manual/sacm12000

For any given year the required procedure is to total all gains and losses for the year to arrive at a net gain or loss.
Only a net loss for a year can be carried forward but, once carried forward it is only necessary to use so much of the losses brought forward to reduce the new years gains down to the annual exempt amount. This is in the guidance notes.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/631854/SA108_notes_2017.pdf

tg99

jimmo wrote: »

Your understanding is correct. One of the conditions of making an NVC is that you must own the shares at the time of making the claim. As company has been dissolved you no longer own the shares and cannot claim.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg13125

Certainly in my days as a taxman there was no way around that. Whilst I seriously doubt that you can use it there is now Overpayment Relief. I claim no expertise because it came in after I retired but the manual is here.
https://www.gov.uk/hmrc-internal-manuals/self-assessment-claims-manual/sacm12000

For any given year the required procedure is to total all gains and losses for the year to arrive at a net gain or loss.
Only a net loss for a year can be carried forward but, once carried forward it is only necessary to use so much of the losses brought forward to reduce the new years gains down to the annual exempt amount. This is in the guidance notes.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/631854/SA108_notes_2017.pdf

Thanks very much for your reply. With regards to the company I have which is not yet dissolved but of negligible value, I was intending to make this NVC within my 16-17 tax return. That would also revive the capital gain I deferred into it (as it is an EIS company) in the same tax year so I would need to declare that in the same return; plus I see the 16-17 return gives me the option to claim the loss relief against 15-16 income directly through the 16-17 return rather than having to amend 15-16. Hence how would I know HMRC deemed my NVC as valid and accepted as presumably I would need to know this before claiming for loss relief? Or is it a case because it is 'self assessment' that I am effectively self assessing it myself as being valid and therefore I go straight ahead and claim the loss relief, revive the deferred gain etc in my 16-17 return rather than first awaiting HMRC specifically checking this and contacting me to say if it is valid or not (was wondering if any automatic system for example where the NVC code I select in the tax return is automatically picked up by their systems thus triggering someone at HMRC to review it and accept it as valid or not before I go ahead and claim loss relief).

Also, my understanding is that if on dissolution there is a residual capital return to shareholders then the negligible value claim is not reversed and it just becomes another transaction, e.g. Company shares bought for £100, thus NVC made for allowable loss of £70 (as deduct 30% EIS income tax relief given) as at 5.4.17 for example. So treated as though I sold and reacquired shares for £0 at 5.4.17 hence if some residual distribution of say £1 when dissolved then this would be a normal capital gain I report in my tax return of £1?

jimmo

In case you have not already done so, I would suggest you check the HMRC list of agreed negligible values.
https://www.gov.uk/guidance/negligible-value-agreements-to-30-june-2014
Do you also have the latest version of HS286?
https://www.gov.uk/government/publications/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he--2
It may also be useful to bear in mind that the NVC and any loss relief claim are separate claims and do not have to be done at the same time. I don't know how ready you are to submit your 2016/17 Return but, if your shares are on the Agreed List and the effective date is before 5 April 2016 then its relatively plain sailing as long as your Return gets to HMRC before the company is dissolved. Otherwise it might be sensible to send an NVC by recorded post now.
If your shares are not on the list then whilst HMRC do offer a post transaction valuation service (using form CG34)I'm afraid you won't have time to use this and guaranty to get an answer before 31 January 2018. Without that it's just down to you to make your claim. In my day we wouldn't even look at your negligible value claim until there was tax at stake. i.e. Until you actually use the claimed loss.
You are right that if your negligible value claim stands any residual distribution you receive will be a new capital gain with a nil acquisition value.

Anne_L

On a related subject - can an entrepreneur make a negligible value claim? I see that if a company is registered for EIS, this is one condition that would qualify the shares for a negligible value claim, but I was unsure whether the founder of the company could claim - or whether this would be restricted to investors.

Sibbers123

This is an old thread. You are best off creating a new one for your question, and providing as much of the relevant details as possible (such as what did the company do for starters!).