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February 17, 2014

Two Cases on Negligible Value Claims - Are Shares Worth Nothing?

See our Spring 2014 Tax Update for more recent cases.

The First Tier Tribunal has recently heard two cases posing different questions as to whether shares are of negligible value.

Brown v HMRC TC03118

Losses which accrued by a company over many years meant that it could no longer pay dividends to its shareholders.

Mr Brown owned shares in the company and he said, therefore, that they had become of negligible value and he claimed a loss on his tax return.

HMRC countered by suggesting that the shares still had value because another shareholder had been lending money to the company to support its trade and whilst this occurred there remained the possibility of the company returning to profit.

The Tribunal's verdict was that it wasn't necessary for a company to have ceased to trade or be put into an insolvency arrangement for its shares to be of negligible value. Therefore the loss was available to Mr Brown as claimed.

R & J Dyer v HMRC TC03073

A loss claimed by Mr and Mrs Dyer through a negligible value claim was challenged by HMRC.

HMRC said that the shares on which the loss was claimed actually had no positive “base cost" when they were acquired by the Dyers.  HMRC based their case on the fact that the value of the business owned by the company was absolutely vested in the continued services of the Dyers' daughter.  Therefore because Miss Dyer was not tied to the company by an enforceable contract the shares actually never had any value.

The Tribunal agreed that the shares had never had any positive base cost and therefore even though a negligible value claim could be made, it didn't actually generate a loss.

This point is certainly one to bear in mind when valuations for tax purposes are being prepared or scrutinised.

See our Spring 2014 Tax Update for more recent cases.



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