As previously announced, Budget 2020 enables provision to be made in the Finance Bill 2020 for relief from Income Tax for losses arising on the disposal of certain shares to be extended to shares in companies that carry on business worldwide, rather than just those carrying on their business in the UK.
Income Tax share loss relief applies where an individual subscribes for newly issued shares in a small and medium unlisted trading company, and then disposes of those shares for a loss. It similarly also applies where an investment company subscribes and broadly mirrors the requirements for individuals.
To qualify for the relief the shares issued must be qualifying shares, being either:
- shares to which Enterprise Investment Scheme (EIS) relief is attributable (this applies for individuals only); or
- shares in a qualifying trading company
A company will be a qualifying trading company if it meets 4 conditions at the relevant time. The relevant time varies depending on the condition. At a basic level a company will be a trading company if:
- it carried on a trading activity which was not an excluded activity, for which there is an exhaustive list of activities
- its gross assets did not exceed a limit immediately before and immediately after the subscription
- it was unlisted
- it carried on its business wholly or mainly in the UK
Relief is only due if the holder of the shares made a disposal of them which resulted in an allowable loss for the purposes of the Capital Gains Tax. Relief was given for that allowable loss against income rather than against capital gains as would normally be the case.
The new legislation will extend the relief so that it applies to shares in in companies that are located anywhere in the world, complying with European Commission guidance.
The new rules apply to disposal made on or after 24 January 2019, regardless of when the original subscription took place.
If you have made a loss on shares held in a company that undertakes it business abroad, it may well be worth looking at whether or not the extended relief could apply to you.