When an asset falls in value to the point that it is almost worthless, it may be possible to make a negligible value claim under Section 24 of the Taxation of Chargeable Gains Act 1992. The asset will then be treated as if it had been sold and immediately acquired again, so that the loss can be set off against other income. For a claim to succeed, however, the asset must have become of negligible value during the time the claimant owned it.

On 30 September 2017, a woman who was one of two directors and shareholders of a restaurant company applied for £150,000 of shares in it at a value of £1 each, to be paid for by converting director’s loans into capital. The following year, she submitted tax returns which included a negligible value claim of £150,000 in respect of the shares, setting off £100,000 of the loss against her income for the 2016/17 and 2017/18 tax years. HM Revenue & Customs (HMRC) disallowed the claim on the grounds that the shares were already worthless when she applied for them.

The woman challenged HMRC’s decision before the First-tier Tribunal (FTT). While it was common ground that the shares were worthless on 30 September 2017, she argued that the relevant date was when she had introduced her capital into the business, not when that capital was converted into shares. She contended that the asset which had become of negligible value was a right to acquire the shares, rather than the shares themselves.

The FTT observed that when making a negligible value claim, it is necessary to identify the relevant asset. The asset identified on her tax returns was the shares. The FTT found that funds she had contributed to the company were loans and did not give her a right to acquire shares in it. Her appeal was dismissed.