Do you own worthless shares? – Negligible Value Claim

2 min read

If you hold shares in a company that have become of negligible value, even if you have not yet disposed of them, it is possible to make a negligible value claim and potentially reduce your tax liability.

If such a claim is made, you will be treated as if you have sold the shares and immediately required them back at their value at that time.  This effectively crystallises the loss.

Although negligible value is not defined by law, HMRC’s guidance states “An asset is of negligible value if it is worth next to nothing”

You must own the shares at the time of making the claim.  If a company has been dissolved the shares no longer exist and therefore it would be too late to make a claim.  The timing of a claim is therefore particularly important, so any opportunity is not lost.

How can these losses be used to save tax?

The loss can be set off against other capital gains you have made in that year.  If certain conditions are met, it is also possible to backdate the claim to the previous two tax years.  Any unused losses can be carried forward to future years.

Perhaps more useful, in certain circumstances, it is possible to set the loss off against other income as opposed to just other capital gains.

The relief must be claimed within one year of the 31 January after the tax year in which the claim is made.

For the shares to qualify, they must have been subscribed for in a qualifying company.  Broadly speaking, for the company to qualify it must meet similar conditions as to those of an Enterprise Investment Scheme (“EIS”) qualifying company.  These are smaller companies not listed on a stock exchange. 

Furthermore, the company must have been trading for a period of six years up to the date of disposal or its entire existence if that is less. Although, if the company did stop trading before the disposal the company may still qualify under certain conditions.

It is possible to set the loss off against income in the year of the claim, the preceding year or both years.  A slight downside is that the loss can not be restricted in any year to preserve personal allowances, so care needs to be taken to ensure the loss is utilised in the most effective way.

Unless the shares have been acquired via SEIS or EIS then any loss claim is restricted to £50,000 or 25% of that year’s income whichever is greater.

The next step

If you have ever invested any money by buying shares in a company and believe that the shares may no longer have any value, you may be due a tax refund.  We would be happy to review the situation and make a claim on your behalf.

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Transfer a Property to Children via a Trust

2 min read

There are a number of reasons that you may wish to gift an investment property to a trust rather than directly to your children. The two most common are Asset Protection and Capital Gains Tax.

From a tax perspective, it is important that neither you, your spouse nor any minor children are able to benefit from the trust. Typically a trust will be a discretionary trust with adult children and/or grandchildren being beneficiaries.

Asset Protection

As the trust owns the asset, it means that the asset can be protected and remain in the family as it does not form part of the beneficiary’s estate in the event of a bankruptcy, divorce or death. Additionally, the settlors can also be trustees, which means they will have a say on how and when funds or assets are distributed to beneficiaries.

Capital Gains Tax (CGT)

A gift of an asset to a child or to a trust is treated as a disposal at market value which, in the case of an investment property, would create a CGT liability based on the increase in value during its ownership. However, it is possible to hold over the gain on a disposal to a discretionary trust as it is chargeable to Inheritance tax (IHT) so that no tax is payable at this time.

Inheritance Tax (IHT)

The disposal to the trust is a chargeable lifetime transfer (CLT), assuming you have made no other CLTs in the last seven years each individual has a nil rate band of £325,000. A couple could therefore transfer a property valued up to £650,000 without incurring an immediate IHT charge (any excess would be charged to IHT at 20%).

As with an outright gift, if you survive the transfer by seven years it will fall out of your estate for IHT purposes. Every ten years the trust will be assessed to IHT based on the value of the assets in the trust at that time. If it exceeds the nil rate band/bands at that time the excess is charged to IHT at a rate of 6%.

It is possible at a future date to pass the property directly to a beneficiary and again hold over the gain for CGT purpose. There may be an IHT exit charge if there was IHT payable when setting up the trust if the transfer is within ten years of this event or, if not, IHT was payable at the most recent ten year anniversary.

Next Step

If you have any questions on gifting an investment property to a trust, our team of expert Accountants would be happy to assist.

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