Q&A Section
Q&A: 3). Negligible Value Claims: What does ‘negligible value’ mean? How do you make a ‘negligible value’ claim?

 

What does ‘negligible value’ mean?

HMRC interpret ‘negligible value’ as meaning ‘next to nothing’.  It does not mean simply that the asset is worth much less than it used to be.  Effectively, it must be almost worthless. The asset must have been of negligible value while you have owned it and not when you acquired it.

It is important to note that HMRC take a strict line on what is construed as ‘negligible value’. In respect of the goodwill of a business, HMRC are likely to challenge an argument that the goodwill is worthless unless the business has ceased trading or is insolvent.

 

Making a ‘negligible value’ claim

If you own a chargeable asset on which you would normally pay capital gains tax if you sold it at a profit, and you can show that the asset is now worthless, it is possible to make a ‘negligible value claim’.  In essence, this means the asset will be treated as if you sold it and bought it back for its market value, realising a loss for the purpose of CGT.   This loss can be set against chargeable gains to reduce CGT liability.

One of the commonest assets to become of negligible value is company shares. Companies may become dormant after they cease to trade, whereby they still exist but have no assets or they may be in liquidation with no assets available to distribute after creditors have been paid off.

If the company is in liquidation the following will need to be supplied to HMRC:

  • a statement of affairs for the company and any subsidiaries;
  • a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
  • details of how this decision was reached (for example, a balance sheets where liabilities are significantly greater than assets); and
  • evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If the company is not in liquidation or receivership, HMRC will require comprehensive evidence to satisfy them the shares are of negligible value.

You can check the valuation of an asset by using form CG34.

Claims can be made either on your tax return or in writing to HMRC. Your tax office may send your claim to the Shares and Assets Valuation team for consideration.

To find out more on this subject visit the GOV.UK site. You can also contact our team who will be happy to provide advice and guidance. You can reach us on: 020 7193 8798 or email us at hello@accountspro.co.uk. Alternatively you can send us a message via our contact page:- https://accountspro.co.uk/contact-us/

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