Wrong wording rules out CGT negligible value claim

In Robert Williams v HMRC [2023] TC08820, the First Tier Tribunal (FTT) found that it had no jurisdiction to consider HMRC’s refusal of a negligible value claim that was not in the form required by HMRC.

• Mr Williams claimed a capital loss of £200,000 in his 2015-16 tax return in relation to a Loan made to a trading company.
• In September 2018, during an HMRC enquiry into the 2015-16 return, Mr Williams’ accountants wrote to HMRC explaining that the loan had been converted into shares in July 2009.
  • This letter enclosed a shareholder agreement which clearly identified the name of the company, the class of shares and the number of shares held by Mr Williams.
• HMRC replied, asking whether it should be assumed that Mr Williams wished to make a Negligible value claim, and requesting further information.
  • This further information was provided to HMRC, and in March 2019, Mr Williams’ accountants confirmed that Mr Williams did indeed wish to make a negligible value claim.
• In July 2019, HMRC wrote to Mr Williams’ accountants stating that, in the absence of any valid negligible value claim, the loss of £200,000 would be removed from the 2015-16 Capital Gains Tax computation.
  • HMRC subsequently issued a closure notice removing the capital loss.
• Mr Williams Appealed to the First Tier Tribunal (FTT). HMRC applied to have Mr Williams' appeal struck out.

The FTT found that:

• As the purported negligible value claim was not made in a Self-Assessment tax return, Schedule 1A TMA 1970 set out the necessary components of a claim.
• Although there is no specified form that must be used in order to make a negligible value claim, a claim was necessary and the accountants’ letter of September 2018 did not satisfy the necessary requirements for such a claim. The letter:
  • Was not ‘in such form’ as required by HMRC under paragraph 2(3) of Schedule 1A.
  • Did not contain a declaration to the effect that ‘all of the particulars given in the form are correctly stated to the best of the information and belief of the person making the claim’ as required by paragraph 2(4) of Schedule 1A.
• Section 31 TMA 1970 does not contain any right of appeal against HMRC’s decision not to admit a negligible value claim that is not in the required form.
  • This meant that the FTT did not have the jurisdiction to determine this issue or to consider the conduct of HMRC not to allow the claim or refer the taxpayer to the appropriate guidance.
  • In the absence of a right of appeal, whether or not the claim was in the required form was a matter for HMRC.

HMRC’s application to strike out Mr Williams’ appeal was allowed.

Comment

This case highlights the importance of ensuring that claims are correctly made.

The FTT did note there were failings on the part of HMRC, who accepted that rather than seeking clarification as to whether a negligible value claim was being made, ought to have responded to the accountants’ September 2018 letter by explaining what was needed to put the claim in the proper form and set out the information needed.

Useful guides on this topic

Negligible value claims
What is a negligible value claim? When and how can a claim be made?

CGT: Loans to traders relief
What is loans to traders relief? When can it be claimed? What are the conditions of the relief?

CGT: Reporting when & how?
How do you report your capital gains? What return do you use? There are different ways for individuals to report capital gains depending on whether you are resident or non-resident, and whether you are in or out of Self Assessment. 

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Loss relief (Income Tax) disposal of shares
Share Loss relief allows you to offset a loss made on the disposal of shares against income instead of following normal capital loss treatment. 

External link

Robert Williams v HMRC [2023] TC08820