With the pandemic taking a heavy toll on businesses across the UK, your investor clients will likely have taken a hit on their share portfolios. But could this mean that they can secure a tax refund to cushion the blow?

Liquidation

According to the London Gazette, the number of companies filing for insolvency increased by 50% in March 2020. The ongoing coronavirus outbreak is taking a serious toll on British businesses; however, for clients who hold shares there may be an opportunity to secure some tax relief early.

Negligible value.

If your client’s shares have become worthless, or at least practically worthless, they can be said to be of “negligible” value. If this is the case, you can seek to make a claim for them under s.24(2) Taxation of Chargeable Gains Act 1992 . This treats your client as having disposed of the shares at their market value, i.e. £nil or close to £nil, and immediately reacquiring them at the same value. This crystallises a disposal and, probably, a capital loss that can be offset against any capital gains they might have.

Pro advice. HMRC needs to agree that the shares are negligible in value. It publishes its own details of listed shares (see Follow up ), but it should accept a negligible value claim if the company has started, or is in the process of starting, the process of winding up and there is no real prospect of any value being returned to the shareholder.

Share loss

If the shares are not quoted shares but are in a trading company, your clients may be able claim to relieve the loss against income instead. This could be very valuable if you can carry back the loss to 2019/20 and claim a refund of tax already paid by your client on their tax return, or by adjusting a return if it’s already submitted.

Pro advice. Before you make a claim, ensure your client won’t pay tax at a higher rate for 2020/21. If they will, encourage them to get their 2019/20 tax return information to you as soon as possible, and if you can quantify the amount of the refund, claim it using Box 16 “Any 2020-21 repayment you are claiming now” on the Tax Calculation Summary page. Don’t forget to detail the loss and calculation behind the refund in Box 17.

If there is no real prospect of recovering the investment, make a negligible value claim. If the shares are unquoted, seek to use share loss relief to offset the loss against general income and possibly secure a cash refund.

The next step

HMRC list of quoted shares that are of negligible value

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.