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Most people assume you need to sell an asset before you can claim a capital loss on it. That is not always true. Where shares or other assets have become effectively worthless, HMRC allows you to make a negligible value claim — treating the asset as sold and immediately reacquired at its current negligible value, without any actual disposal taking place. This creates a capital loss that can be used to offset gains elsewhere in your tax position. Our tax advisors at Tax Accountant work with investors, directors and shareholders on capital gains tax planning, and negligible value claims are one of the most underused reliefs available. Poor timing or a poorly structured claim can permanently restrict the relief — or lose it altogether.
What Is a Negligible Value Claim?
A negligible value claim applies where an asset has become of negligible value but has not actually been disposed of. The asset still legally exists. It has simply lost almost all its economic worth. For shares, this typically occurs where a company is insolvent, has ceased trading or has no realistic prospect of recovery — even if it has not yet been formally wound up.
The rules sit in TCGA 1992, section 24. Where an asset has become of negligible value, the taxpayer can claim to be treated as having disposed of and immediately reacquired it for a consideration equal to its negligible value. In most cases, that value is nil. The effect is to crystallise a capital loss without any actual sale taking place. The legislation then treats the asset as reacquired for nil. If the asset somehow recovers in value or is later sold for consideration, the full gain from nil becomes chargeable at that point.
One important point: the asset must have become of negligible value after it was acquired. If the asset was of negligible value at the time of acquisition, no claim is possible. This matters particularly in the context of capitalising director loans into shares, which we cover below.
When Is an Asset of Negligible Value?
There is no statutory definition of negligible value. Case law and HMRC guidance establish that the value must be very small — not merely reduced. A share worth a few pence rather than pounds is unlikely to qualify. A share that has no realistic prospect of yielding any value to the holder — for example shares in a company in liquidation with no prospect of a return to shareholders — is more likely to qualify.
In practice, HMRC looks for evidence such as confirmed insolvency, a balance sheet deficiency, cessation of trade or confirmation from an insolvency practitioner. A company does not need to be formally dissolved for a claim to be valid. The key question is whether the asset has any realistic economic value at the date the claim is made. HMRC maintains a list of shares it has agreed are of negligible value, which provides useful guidance — though it is not exhaustive and assets not on the list can still qualify. HMRC’s guidance on negligible value claims sets out the approach HMRC takes in assessing these cases.
Why Timing Matters More Than Most People Realise
Timing is one of the most critical elements of a negligible value claim, and getting it wrong can be costly. Under TCGA 1992, section 24(2)(b), the claimant can specify a date at which the asset is treated as having become of negligible value. That specified date must not be more than two years before the start of the tax year in which the claim is made. The asset must also have been of negligible value at that specified date.
This backdating facility is valuable. It allows the deemed disposal to be treated as occurring in an earlier tax year, which means the capital loss arises in that earlier year. Capital losses cannot normally be carried back — so the ability to specify an earlier date can allow a loss to be set against gains in a year that has already passed.
The two-year limit links to the tax year of the claim, not the date of submission. A claim made in the 2025/26 tax year can specify that the asset became of negligible value at any point on or after 6 April 2023. However, if the claim is included on a tax return submitted on 31 January 2027 — as many returns are — the two-year window runs from 6 April 2024, not 6 April 2023. Waiting until the last moment to file can cost a full year of backdating opportunity. This is a point our tax advisors raise consistently with clients who hold shares in failed or failing companies.
What Happens When a Company Is Formally Dissolved?
The timing rules become particularly important where a company is dissolved following a liquidation. Once a company ceases to exist, the disposal falls under TCGA 1992, section 24(1) rather than a negligible value claim under section 24(2). This means no negligible value claim is made — and the backdating facility under section 24(2)(b) is not available. The loss arises at the point of dissolution and cannot be shifted to an earlier year using the two-year backdating window.
This means that where shares in a company are likely to become worthless — for example where a liquidation is underway — making a negligible value claim before the company is formally dissolved is often the better course of action. It preserves the backdating option. Waiting until after dissolution removes it. Our team identifies these situations early for clients as part of our personal capital gains tax and business capital gains tax work.
How to Make the Claim
A negligible value claim is a formal claim and must be made explicitly. It is not automatic. For individuals within self-assessment, the claim is normally made in the tax return or by a standalone written claim to HMRC. The claim must identify the asset, state the date specified as the negligible value date and set out the amount of the loss.
Any losses generated by the claim must also be separately claimed in the normal way for capital losses. Where the loss is to be relieved against income rather than against capital gains, a further explicit claim under ITA 2007, section 131 is also required. This is a separate claim with its own conditions and time limits — it is not automatically included within the negligible value claim itself.
Capital Losses Versus Relief Against Income
The default position is that a loss from a negligible value claim is a capital loss. Under TCGA 1992, sections 1E and 16, capital losses can only be set against chargeable gains of the same tax year or carried forward to future years. They cannot be carried back.
However, there is an important exception. Where the shares qualify for share loss relief against income under ITA 2007, section 131, the loss can be set against income of the same tax year or the previous tax year — not just against capital gains. This is a significantly more flexible and valuable form of relief. Where both years are covered, the taxpayer specifies which year takes priority.
For a loss to qualify for share loss relief against income, several conditions must be met. The company must be a qualifying trading company or the holding company of a trading group. The trade must have been carried on commercially with a view to profit. The shares must be ordinary shares. Critically, the shares must have been subscribed for by the claimant in cash or qualifying consideration. Shares acquired by gift or by purchase from another shareholder do not qualify. The loss must also arise on an actual or deemed disposal — which is why negligible value claims are commonly used to bring the loss into existence.
There are also anti-avoidance provisions. Relief is restricted where arrangements exist with a main purpose of securing a tax benefit. The loss relief is also subject to the 25% or £50,000 restriction for losses unless the company was a qualifying Enterprise Investment Scheme or Seed EIS company.
The Director Loan Capitalisation Trap
One of the most common scenarios where negligible value claims arise — and where they can go wrong — involves director or shareholder loans that have been capitalised into shares.
A director advances money to their company by way of a loan. The company struggles. The loan is capitalised into shares to strengthen the balance sheet or satisfy lender requirements. If the company later fails, the director makes a negligible value claim on the shares.
The problem is that where a loan is capitalised, the shares are treated as acquired in exchange for the loan rather than subscribed for in cash. This means the shares do not qualify for share loss relief against income under ITA 2007, section 131. The resulting loss is a capital loss only. It can be set against capital gains but cannot be relieved against income.
There is a further risk. HMRC may challenge the negligible value claim itself on the basis that the shares were worthless from the moment of issue — meaning they did not become of negligible value after acquisition, but were of negligible value when acquired. If HMRC succeeds on this point, no negligible value claim is available at all on the shares. The director may still have a capital loss claim on the original loan under TCGA 1992, section 253, which permits backdating of the claim to offset the loss against gains in the preceding two years — but the more valuable income tax relief under ITA 2007, section 131 would not be available.
This distinction between retaining a loan and capitalising it into shares has significant tax consequences. It is a decision that should be taken with specialist advice rather than purely for commercial or accounting reasons.
How Our Tax Advisors Can Help
Negligible value claims involve tight time limits, formal requirements and decisions about whether to claim against income or capital that can make a material difference to the relief obtained. Making the claim at the right time — and structuring it correctly — is not something to leave to chance or pick up on a routine tax return.
Our team works with investors, company directors and shareholders on capital losses, negligible value claims and share loss relief as part of our personal capital gains tax and business capital gains tax services. Where a company is failing or has failed, we review the position early to identify whether a claim is possible, whether backdating is available and whether the shares qualify for the more valuable income relief route.
If you hold shares in a company that has become worthless — or where a director loan has been capitalised and the company is now struggling — get in touch with our team as soon as possible. The earlier we review the position, the more options remain available.