Losses on shares set against income

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Losses on shares set against income
  • Conditions
  • Qualifying shares
  • Qualifying trading companies
  • Identifying the shares sold
  • Reorganisations
  • Quantifying and claiming income tax relief
  • Cap on unlimited income tax reliefs
  • Mechanism of relief
  • Making the claim
  • More...

Losses on shares set against income

Usually, allowable capital losses can only be set against chargeable gains. If the losses are not fully utilised against gains in the year in which they arise, the excess is carried forward to use against future gains. See the Use of capital losses guidance note for further details.

This rule can be broken if the loss arises on certain shares. If the shares meet the conditions, the taxpayer can choose whether to set the losses against:

  1. his chargeable gains, or

  2. his income for:

    1. that year

    2. the previous year, or

    3. both years

This may also be referred to in practice as ‘share loss relief’.

Given the lower rates of capital gains tax compared with the rates of income tax, it is more tax effective to set the losses against income if possible. Losses on any shares not meeting the conditions are treated as capital losses under the normal rules.

This is a common mechanism of obtaining relief for losses on enterprise investment scheme (EIS) shares. See the Venture capital scheme shares guidance note for more details on the capital gains tax treatment of these shares.

See Tolley’s Capital Gains Tax 2020/21 Chapter 44.15.

Capital losses on shares in qualifying trading companies set against total income are included in the cap on unlimited income tax reliefs (see below).

Note that FA 2020 includes changes to the qualifying trading company conditions for share loss relief that apply with effect from 24 January 2019. This is response to the reasoned opinion issued by the European Commission on the same date that stated that the existing rules breached the EU principle of free movement of capital. The existing condition breaches EU law because relief is only available on shares in non-EIS companies where the company carries on its business wholly or mainly in the UK. Therefore, it may be possible for individuals with losses on shares in such non-UK companies to claim share loss relief. For a detailed discussion of the matter

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