Investors in failed companies need to put in their tax relief claims promptly if they are to minimise their losses, according to Ann Bibby, partner in the Birmingham office of international accountancy firm Mazars.
Delay, she warned, could mean getting back less than they otherwise might.
“This year’s Budget included plans to cap all otherwise uncapped income tax reliefs from next April,” noted Ms Bibby.
“Income tax share loss relief is likely to be subject to this limit.
“Top rate taxpayers who act now can obtain relief at 50 per cent rather than 45 per cent; they may be able to claim relief against their income for 2010/11 or 2011/12; and will not see their loss relief restricted to the higher of £50,000 and 25 per cent of income as it would be if claimed for 2013/14.
“There is no need to dispose of shares to crystallise a loss. Any shares that are still owned but whose value is now ‘negligible’ can be the subject of a claim.
“The company does not even have to be in administration or liquidation – provided the shares could not be disposed of for any meaningful value and there is no prospect of their value recovering, a claim may be made.
“A typical case would be a company with negative assets which depends on its lenders – who could be the shareholders – for support.”
The company concerned must be unquoted but that can still include shares listed on AIM.
Land and property dealing and development, finance (banking, leasing, commodity trading) and trades that are based on the use of property, such as hotels and nursing homes, don’t qualify for relief.
Ms Bibby said: “HM Revenue & Customs will only accept that ‘negligible value’ effectively means worth next to nothing when compared with their nominal value which can mean it is more difficult to establish that shares issued at a premium have become worthless. However, the value to be assessed must be a ‘real world’ value reflecting the potential costs of disposal.
“HMRC may be sceptical about claims that shares in a company that is still trading are worthless, arguing that the fact the shareholders have not put the company out of its misery must mean that the company retains more than merely negligible value. Such arguments are often worth less than the shares concerned: what matters is present value, not some vague hope that the company’s fortunes may turn up in the future.
“Often a robust valuation exercise is needed to support a claim to negligible value. It is better to pre-empt an HMRC enquiry by presenting a strong case from the start than to start off on the back foot.
“The conditions for the relief involve complex technical rules and may depend on skilled negotiation with HMRC. Taking advice will help you to decide what relief is available and what options for claiming relief best apply to your personal circumstances.”