Making negligible value claims
If you have realised losses (particularly in crypto assets or NFT’s) making negligible value claims against previous capital gains may be especially useful.
What is regarded as negligible value?
When making negligible value claims you need to consider whether the asset(s) concerned have become of negligible value. There is no definition in the taxes legislation, however HMRC consider an asset has become of negligible value when the following apply:
What conditions must be satisfied for a claim?
The concept of negligible value was considered at length in this tax case here. Essentially HMRC consider that an asset cannot have a negligible value if it has a market value. Just to clarify, an asset's market value is the price it might reasonably be expected to fetch on an open market sale. Therefore negligible value claims are only valid when the asset is worthless and no one will buy it.
Other matters to consider are as follows:
Procedures for different assets
Land and buildings
It's possible to make a negligible claim for a building or structure, separately from the site on which it is based. However the underlying land is also asset and can never be entirely destroyed and is therefore unlikely to become of negligible value.
Where there is a deemed sale of a building or property as a result of a negligible value claim, it is important to mention that there will be a deemed sale of the underlying land too. In some cases the value of the land may have increased and any gain arising on the deemed sale will be offset against the loss arising on the deemed sale of the building.
HMRC are likely to require copies of correspondence from the liquidator/receiver indicating there is no likelihood of any returns to investors, in support of any claim. Additionally, a statement of affairs including confirmation that the company has ceased trading will be required. If the company is still trading it will be necessary to provide HMRC with a copy of the company's most recent accounts. This should indicate significantly more liabilities than assets in order for a claim to be credible.
HMRC's internal guidance is suitably vague as to what evidence might be required. As the capital gains tax treatment for cryptocurrency is broadly similar to shares (e.g. pooling) similar evidence would potentially be required. So for example where for security tokens have been issued by a business previously HMRC would require evidence that business was no longer viable.
Unfortunately, the position is less clear where cryptocurrency has been held on an exchange which subsequently folds as in the case of Mt Gox. You would therefore need to demonstrate that you had taken all reasonable steps to recover your cryptocurrency and that all avenues had been exhausted.
However HMRC do make it clear that no negligible value claim will be accepted for cryptocurrency loss as a result of fraud.
Making a claim
You do not have to make a claim within a specified time limit of the asset becoming of negligible value. Although, for practical purposes you would potentially make the claim under Self-Assessment.
You can potentially backdate a claim to an earlier tax year not more than two years before the beginning of the tax year of claim. So for example a claim made on 5 April 2023 (2022/23 tax year) can be backdated to 5 April 2020 (2019/20 tax year).
Finally, a backdated claim can only ever apply where the asset was owned at that date and had become of negligible value at that earlier date.
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