Making Sense of Share Loss Relief: How It Works and When You Can Claim It

When investing in small companies, there’s always an element of risk, especially if the company is unquoted or in the early stages of development. But what happens if that investment does not go to plan and the value of your shares crashes to zero? The good news is that UK tax law offers a relief mechanism for this situation: Share Loss Relief.

In this article, we’ll explain what Share Loss Relief is, when you can use it, and how to maximise its benefits—whether you’re based in the UK or are a cross-border investor navigating both.

What Is Share Loss Relief?

Share Loss Relief is a tax provision that allows individuals who have made a loss on shares to claim that loss against their income, not just against capital gains.

This is significant because income tax rates are usually higher than capital gains tax (CGT) rates. So, by setting a share loss against your income, you could reduce your tax bill more effectively.

There are two common scenarios where this relief can apply:

1. You dispose of your shares and make a capital loss.
2. Your shares become effectively worthless (but you haven’t sold them), and you make a Negligible Value Claim.

Let’s explore both.

The Negligible Value Claim: Claiming a Loss Without Selling

If the company you invested in has collapsed, gone into liquidation, or is insolvent, your shares may now be of negligible value. That means they are worth next to nothing.

In such cases, you don’t need to sell the shares to realise a loss. Instead, you can make what’s called a Negligible Value Claim under section 24(2) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). This treats the shares as being sold and immediately repurchased at their negligible value, which results in a tax loss.

What qualifies as “negligible value”?

There’s no strict statutory definition, but HMRC guidance suggests that “negligible” means “worth nothing or next to nothing”. Think insolvent companies, or those with no prospect of recovery. HMRC also publishes a list of companies it accepts as having become negligible in value (mainly quoted shares), but this list isn’t exhaustive.

Using the Loss Against Income

Once a loss is crystallised via a disposal or a negligible value claim, you can potentially set it against your income, which is where Share Loss Relief comes in.

To qualify, the shares must be in a qualifying trading company and must have been subscribed for directly by you (not bought second-hand). If the shares were eligible for EIS (Enterprise Investment Scheme) or SEIS (Seed Enterprise Investment Scheme) relief, you’re even more likely to qualify.

How Much Relief Can I Claim?

This is where it gets technical, but important.

You can set the capital loss against:

• Your income for the same tax year as the loss (ITA 2007 s.131).
• Or your income for the previous tax year (ITA 2007 s.132).

If the shares don’t qualify under EIS/SEIS, there are limits:

• You can claim relief for the lower of £50,000 or 25% of your adjusted total income.

If they do qualify, the amount is unlimited.

A Practical Example

Let’s say Julia, a UK-resident investor, subscribed £100,000 in 2021 to an unquoted UK tech startup. By early 2025, the company went into administration and ceased trading. She still holds the shares, but they are now worthless.

Julia makes a Negligible Value Claim in her 2024/25 self-assessment return. The loss of £100,000 is established.

• The company was an EIS-qualifying business.
• Julia earns £120,000 in employment income that tax year.

Because the shares qualify for EIS, she can offset the entire £100,000 against her income, saving tax at 40%, which equates to £40,000 of tax relief.

If the shares hadn’t qualified, she would have been restricted to a £50,000 claim (or 25% of £120,000), and the remaining £50,000 would carry forward as a capital loss.

What About Share Reorganisations?

You might be surprised to learn that a reorganisation of a company’s share capital doesn’t always result in an immediate capital gain or loss. In most cases, HMRC treats a reorganisation as a continuation of the original holding. For tax purposes, the old and new shares are treated as the same asset acquired simultaneously with the original shares.

This means that no disposal has occurred, so no capital loss can be crystallised immediately, even if the new shares issued under the reorganisation have dropped significantly in value.

However, this is where Share Loss Relief comes into play. Even though there’s no disposal, a negligible value claim can still be made for the reorganised shares if they become worthless, triggering a loss for CGT purposes.

Example: Reorganisation Followed by Insolvency

Let’s take Mark, who subscribed £80,000 in 2021 for shares in a private company. In 2023, the company restructured its share capital due to financial pressure, and Mark’s original shares were exchanged for deferred shares as part of a rescue deal.

These deferred shares gave him no voting rights, no dividend rights, and were effectively worthless, though the company technically still existed.

In 2025, the company was formally liquidated.

Although Mark had not sold anything, he made a negligible value claim in 2025. HMRC accepted that the deferred shares were of negligible value and allowed him to treat the loss as having occurred in that year. Because the shares were originally subscribed for, he could then claim Share Loss Relief against his income for the year, just like a regular capital loss from a total write-off.

Other Points to Consider

• Timing matters: A negligible value claim can be made in the current or either of the two previous tax years, if the shares were of negligible value at that earlier time.
• Proof: Keep evidence that the shares were truly worthless—HMRC may ask for it.
• Base cost reset: Once you claim negligible value, your base cost is reset to zero, so if the company somehow recovers, the whole gain would be taxable.

Materials You’ll Need

• Subscription confirmation (to show you originally bought the shares).
• Financials or liquidation reports proving the company’s insolvency.
• Share certificates or records showing your holding.

Final Thoughts

Share Loss Relief is a powerful but underused tool—especially for entrepreneurs, angel investors, or professionals who support startups. With proper planning, you can turn a failed investment into a meaningful tax benefit. If you are an internationally mobile individual, it is essential to consider how local tax residency and Double Tax Treaties interact with your UK filing obligations. If you’ve been part of a share reorganisation, don’t assume all tax relief is off the table. Even if no actual disposal has taken place, a negligible value claim can allow you to realise a loss and use Share Loss Relief, particularly if the reorganised shares no longer hold any real economic value.

Want Support with Tax position?

Our team at WellTax advises clients on capital loss strategies, negligible value claims, and international tax planning. If you’re unsure whether your loss qualifies, or you want to coordinate claims across the UK, get in touch with us for a consultation.