Cut your losses to get a tax refund

Worthless investment

You may find yourself between a rock and a hard place when nobody wants to purchase the shares you own in a failed business. Luckily, you don’t need to sell your shares in order to create a capital loss for tax purposes.

Tax solution

If you can show that since your purchase, the shares have become of negligible value, then you can make a claim to treat the shares as though you sold them and then immediately re-acquired them. This crystallises a capital loss even though you’re still the not so proud owner of the shares.

You can make a claim either on your self-assessment tax return or by writing to HMRC. HMRC publishes a list of eligible quoted shares.

Timing

To some extent you have flexibility over the timing of your claim and can use this to your advantage.

Example. Tony owns shares in Acom Ltd that became worthless a few years ago. He can make a negligible value claim to crystallise a capital loss now, i.e. in 2025/26, or he could wait until the new tax year begins to crystallise the loss in 2026/27.

To make a negligible value claim you must still own the shares.

Once a company has been dissolved the shares no longer exist and a negligible value claim is no longer possible. However, a capital loss arises on the date the company is struck off.

Backdating your claim

You may be better off getting your claim in sooner rather than later if backdating it is an option.

You can treat the capital loss as arising up to two years prior to the start of the tax year in which the claim is made, providing the shares were also of negligible value on that earlier date.

Example. Tony made a capital gain on the sale of a property in 2023/24, and paid capital gains tax (CGT) at 28%. If he waits until 6 April 2026 to make the claim, he loses out on the opportunity to backdate the claim to the 2023/24 tax year. Whereas if he gets the claim in now, he can ask for it to be backdated to the 2023/24 tax year (as the shares were also worthless at that time) and offset the loss against the property gain. Tony will then get a refund of tax paid at 28%, which is higher than current CGT rates (on everything except carried interest).

Unquoted shares

If the shares in question were subscribed for (purchased directly from the company), are unquoted, i.e. have not been listed on a recognised stock exchange, and the company met the definition of a trading company, then the loss can be offset against income instead. As income tax is charged at higher rates than CGT, this will usually result in a larger tax refund.

Once the loss has been claimed, it can be offset against income tax in the tax year the loss is treated as arising in, or the preceding tax year.