Have you ever invested in a company which has failed?

Did you know, if the conditions set out below apply, it may be possible to set off a loss on the disposal of certain shares in unquoted, trading companies, against the earnings of the disposing shareholder.

In order to qualify:

  • The shares disposed of must form part of the ordinary share capital of the company.
  • The claimant (or spouse/civil partner) must have subscribed for the share.
  • The company must be a qualifying trading company.
  • The shares must not be listed on a recognised stock exchange – listing on the AIM market are not considered “quoted”.

Any loss relief computed will be limited to:

  • A transaction made at arms length for full consideration.
  • A distribution in the course of liquidation or winding up.
  • A negligible value claim. (When shares have no value)

The relief can be claimed:

  • For the tax year in which the loss occurred.
  • Or, the preceding tax year.

This relief provides a measure of compensation for shareholders who invested in companies, and have lost money when the company was subsequently sold or wound up.

Also bear in mind that losses of this type, set against other capital gains in the same year, will save capital gains tax at 18% after 5 April 2008. (If the proposed changes to CGT are carried through in the forthcoming Finance Bill.) If those same losses are set off against other income in 2008-2009, as suggested in this article, the tax savings at income tax rates could be 20% – 40%.