Section 24 Taxation of Chargeable Gains Act 1992 allows loss relief to be claimed on an asset which has become of negligible value even though the asset has not been disposed of. There is no definition of negligible value and therefore a degree of uncertainty about what it means, so the recent Tribunal case of Barker v HMRC TC 1487 may be helpful.
The Tribunal said that negligible value for this purpose means that the asset is worth next to nothing (but not nil). However that does not really take us much further. The best we previously had was a CCAB statement in 1971 which said that for Capital Gains Tax purposes, small could be defined as 5% and negligible would be considerably less.
However, this percentage formula has been rejected by the Tribunal who say that it is an absolute test, without regard to the previous value of the asset. So a £10 million asset which is now only worth £10,000 may well be negligible in comparison, but £10,000 is not negligible in absolute terms. That is helpful clarification bit it does not move us forward very much.
A more helpful way of approaching this matter emerged from the Tribunal – that the issue should be determined by reference, not to abstract calculations of market value, but simply whether the asset could sensibly have been sold. If for some reason (as in the case of Barker) on the balance of probabilities the shares were unsaleable on the relevant particular date then they would be regarded as of negligible value.
That gives us something to work on. It must be better than “next to nothing” which is just a phrase which will mean different things to different people. At least a sensible professional judgment can be made as to whether something is saleable.
A negligible value claim can be more valuable than it appears because it is not merely a means of establishing a capital loss. If the subject matter is shares in an unquoted trading company for which the taxpayer had subscribed, it is possible to obtain an income tax deduction under Section 133 Income Tax Act 2007 gaining relief at 50% which is obviously much better.