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Business Doctor: Can I offset losses on worthless shares?


PC writes: I was looking through my paperwork and discovered some Enterprise Investment Scheme (EIS) certificates regarding shares in a trading company that I had subscribed for about 10 years ago. I’m not making any money on these shares and I don’t think they are worth anything. They cost me £200,000. Is there anything I can do to recognise the loss?

When these shares were issued, you would have been entitled to EIS income tax relief, writes Lynne Rowland, tax partner at Kingston Smith LLP. This would have been calculated as 20% of the investment made. On the assumption that you are a higher-rate taxpayer, you reduced your income tax liability 10 years ago by £40,000.

You can try to find a buyer for these shares, but it is likely that you will suffer a capital loss on the sale, although any gain would be exempt from capital gains tax. However, if the company is not trading, you could instead make a “negligible value claim”, which would also mean you have suffered a capital loss.

The actual loss figure will be adjusted by the amount of EIS income tax relief originally claimed — in other words, the loss will be reduced by £40,000.

This adjusted loss can be set against your capital gains in the normal way, or you could choose to set the loss against your income for the tax year if more beneficial. This loss would have to be claimed through your annual self-assessment tax return.