Share Loss Relief allows you to offset losses on shares against your income. This treatment differs from standard capital losses.
Normally, you can only use capital losses against capital gains. However, Share Loss Relief allows you to reduce your income instead. This create a more immediate and often more valuable tax benefit.
Income Tax rates are usually higher than Capital Gains Tax rates. Therefore, using losses against income can lead to greater overall tax savings. In many cases, this approach can result in a tax refund or a noticeable reduction in your tax bill.
When You Can Claim Share Loss Relief
You can claim Share Loss Relief in two situations:
- You sell shares and make a loss
- Your shares become worthless and you make a Negligible Value Claim
Both routes allow you to create a loss for tax purposes. Once the loss exists, you can then use it against your income. However, you must realise the loss before you can claim relief. Without a disposal or deemed disposal, no claim can arise.
You must submit your claim for Share Loss Relief within one year after 31 January following the tax year of the loss. Missing this deadline means you lose the right to claim relief.
Negligible Value Claims
Sometimes, a company fails but you still hold the shares. In this situation, you may not be able to sell them.
Instead, you can make a Negligible Value Claim. This treats the shares as sold and immediately repurchased at almost zero value. As a result, you create a loss without needing to find a buyer.
To qualify, the shares must be worth almost nothing. This often applies when a company becomes insolvent, enters liquidation or has no realistic chance of recovery.
In some cases, you can backdate a Negligible Value Claim if the shares had already lost value in an earlier period.
Using the Loss Against Income
Once you create a loss, you can use it in the following ways:
- Against your income in the same tax year
- Against your income in the previous tax year
This flexibility allows you to reduce your tax bill quickly. Sometimes, you may receive a repayment of tax already paid.
For example: You can offset the loss against employment income, self-employment profits or rental income.
If the loss exceeds your income, the remaining amount becomes a capital loss. You can then carry it forward to offset future gains.
Qualifying for Share Loss Relief
To claim Share Loss Relief, you must meet the following conditions:
- You must subscribe for the shares directly from the company
- The shares must be ordinary shares with full rights
- The company must be a qualifying trading company
Additionally, the company must trade commercially and aim to make a profit. The subscription requirement is particularly important. Shares bought from another investor usually do not qualify.
You should also confirm that the company carries out genuine trading activities. Investment companies or asset-holding businesses do not usually qualify.
How Much Share Loss Relief You Can Claim
The amount you can claim depends on the type of shares involved. For most investments, relief is capped at the higher of £50,000 or 25% of your adjusted total income.
This cap can limit the benefit for larger losses. However, any unused loss still remains available as a capital loss. As a result, even if you cannot use the full amount against income, you retain the remaining value for future use.
Share Reorganisations
A company may reorganise its share structure over time. This process does not usually trigger an immediate gain or loss.
HMRC treats new shares as a continuation of the original investment. As a result, no disposal takes place at that stage. However, you can still claim relief later if the shares become worthless. In this case, a Negligible Value Claim can create the required loss.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.