When your property company is worth nothing: the negligible value claim, and the loan that gets no relief
When a property company fails, its owner is usually left with shares worth nothing and a loan account that will never be repaid. Both are real losses, but the tax code treats them very differently. Here are four assumptions owners commonly make, what the legislation says instead, an illustrative example, and the timing that decides what the loss is worth.
Two losses, two different answers
A property company can go wrong in several ways: a development that ran over cost, a portfolio bought at the top of the market, or borrowing costs that turned modest equity into negative equity. The owner is often left holding two things, shares that are worth nothing and money lent to the company that will never come back. Both feel like losses, and in the ordinary sense they are. For tax they are not alike, and four assumptions about them are common enough to be worth taking one at a time.
Assumption one: nothing can be claimed until the company is wound up
The legislation does not require you to wait. Section 24(2) of the Taxation of Chargeable Gains Act 1992 allows the owner of an asset that has become of negligible value while they owned it to make a claim to that effect. The owner is then treated as having sold and immediately reacquired the asset at the value stated in the claim, which crystallises the loss while the shares are still held and the company still exists. Negligible is not defined in the Act. HMRC read it as worth next to nothing, and the asset must be of negligible value both at the date of the claim and at the date of the deemed disposal. HMRC say there is no time limit for the claim itself, but the deemed disposal can be placed earlier than the claim only within a window: for an individual, not more than two years before the start of the tax year in which the claim is made, and only if the shares were already of negligible value then. Once the company has been dissolved, the claim is no longer the route. The shares have ceased to exist, which is itself a disposal under section 24(1), at the date of dissolution.
Assumption two: the loss can go against salary or other income
Usually it cannot. Section 131 of the Income Tax Act 2007 allows a loss on shares to be set against income, but only for shares the claimant subscribed for in a qualifying trading company. The trading requirement excludes companies whose activities consist to a substantial extent of excluded activities, and dealing in land and property development are among them. Letting property is not a trade at all. For a property company, therefore, the loss is almost always a capital loss. It is set first against any gains of the same tax year, in full, even where that wastes the annual exempt amount, and any balance is carried forward without time limit against future gains. A capital loss must also be notified to HMRC, generally within four years of the end of the tax year in which it arises, before it can be used.
Assumption three: the money I lent is a loss too
This is the one that surprises people most. For capital gains tax purposes, an ordinary loan is not a chargeable asset in the hands of the person who made it: under section 251 no chargeable gain arises on the disposal of a debt by the original creditor, so there is no allowable loss either. The exception is relief under section 253 for a loan that has become irrecoverable, and it requires the borrower to have used the money wholly for the purposes of a trade it carries on. A company that lets property is carrying on a property business, not a trade. A director who lent GBP 200,000 to a letting company that has failed will often have no relief for any of it. Converting the loan into shares once the company is already in difficulty does not repair this, because section 251(3) caps the cost of property acquired in satisfaction of a debt at its market value, and shares in a failing company are worth little. Where a company lends to its own property subsidiary, the corporate rules for loans between connected companies generally give the lender no deduction either.
Assumption four: the timing of the claim does not matter
It matters a great deal, because a capital loss is only as useful as the gains it can meet. A loss that falls in a year with no gains is carried forward and waits. The ability to date the deemed disposal up to two years before the start of the year of claim lets an owner place the loss in a year in which a gain was made, provided the shares were genuinely of negligible value by then.
An illustrative example
The figures are illustrative. A higher rate taxpayer subscribed GBP 50,000 for the shares in a company that let flats, and lent it a further GBP 200,000. Property values fell, the lender called in its facility, and by spring 2025 the company's debts exceeded its assets by a wide margin, with no prospect of anything for the shareholders. In the 2025/26 tax year she sold a second home at a gain of GBP 60,000. In January 2027, during 2026/27, she makes a negligible value claim on the shares and specifies 1 June 2025 as the date of the deemed disposal, which falls after 6 April 2024 and is therefore inside the window. The GBP 50,000 loss then arises in 2025/26 and is set against the GBP 60,000 gain. After the GBP 3,000 annual exempt amount, GBP 7,000 is taxed at 24 per cent, which is GBP 1,680, against GBP 13,680 without the claim. The claim is worth GBP 12,000. The GBP 200,000 loan gets nothing, because the company did not trade.
What to do, and what to ask
Assemble the evidence that the shares are worth next to nothing at the date you intend to claim: the latest balance sheet, current valuations of the properties, the lender's position and any correspondence about a shortfall. Decide the date of the deemed disposal by reference to the years in which you have gains, and check it falls within the two year window. Make the claim, and notify the loss, on the return for the year of the claim or in a separate claim to HMRC. Then put three questions to your accountant. Did the company ever trade, and if so for how long, which could change the answer on both the shares and the loan? Is the company likely to be dissolved before you claim, which moves the loss to the date of dissolution? And for any future venture, would equity rather than a loan, or a structure in which the borrower genuinely trades, leave you better placed if it fails? The answer to a failed investment cannot be changed afterwards. The answer to the next one can.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.