Tax relief on an investment loss
NN writes: I put my retail business into liquidation towards the end of last year after five years of losses and have been told I should make a tax claim. My investment took various forms, including not taking any salary for the last year; money paid for the shares; and money lent to the company, a part of which had been converted to shares. What tax relief will I be able to claim?
You can deduct a loss that has been made when you dispose of unlisted shares, writes Jon Sutcliffe, partner at Kingston Smith LLP. There are a number of conditions, which include the requirement for the shares to be unlisted, and that the company’s trade was in the UK. Some trades do not qualify, but it is likely that your retail business will.
Assuming the company’s shares were all ordinary shares, you can set the loss on your shares against your taxable income for the tax year in which you made the loss and the year before. Your loss will relate to the shares you paid for and, potentially, the shares you received when part of your loan was converted into shares, depending on when this occurred.
Given that you may not have had earnings in the tax year in which the loss was incurred, the value of making a claim will probably depend on the level of your income in the previous tax year. All tax owed for that year will have been paid by January 31, so you should be in a position to get back some or all of the tax that you paid in respect of 2010-11. Any unrelieved loss on your shares will be carried forward as a capital loss to offset against future capital gains.
There is no tax relief for the salary not taken. The rest of your loan to the firm will be a capital loss, which cannot be set against other income but can be set against current or future capital gains.
This is a complex area, so you may need to take advice to be sure that any claim you make is valid.