Share loss relief – evidence of issue of shares

Tue 18 Oct 2016

Share Loss Relief allows capital losses which arise in respect of shares to be set against a person’s income providing certain conditions are met. HMRC’s detailed guidance is at VCM70000. A key feature is that, in order for a loss to be eligible for Share Loss Relief, the shares in question must have been subscribed for by the claimant. In Alberg [2016] TC 05357, the First-tier Tribunal (FTT) found that share loss relief was not available where the appellant could not produce sufficient evidence that shares had been issued to him.

In Alberg [2016] TC 05357, taxpayer and a business associate had established a company in which they each held one share and in order for the company to purchase a business that was in financial difficulties, each invested a further £250,000. However, a draft shareholders’ agreement was all that could be produced as evidence.

The FTT considered the question of whether additional shares had been issued to the appellant in consideration of money or money’s worth and concluded that, following National Westminster Bank plc & Anor v R & C Commrs [1994], this would require the shares to have been issued to him by being written up in the register of members.

The appellant could not produce direct evidence that this had happened and the FTT were unable, on the facts, to infer from the draft shareholders’ agreement and his oral evidence that this had occurred.

The importance of the need to ensure that all necessary legal formalities are complied with is clearly demonstrated by the FTT’s conclusion on the taxpayer’s claim.

Interestingly, in Murray-Hession [2016] TC 05348, the FTT found that an individual had subscribed for shares where another person subscribed for them on his behalf. It found that:

• as decided in McLocklin [2014] TC 03182, an individual is treated as having subscribed for shares if another person has subscribed for them on his behalf;
• although the appellant had transferred funds to the company before the shares were issued, on the authority of Blackburn & Anor v R & C Commrs [2009] BTC 39 a payment in advance was still a contribution to capital and not a loan if there was no debt; and
• HMRC’s argument that, following National Westminster Bank plc & Anor v R & C Commrs [1994] BTC 236, shares are not treated as issued to an individual until they are registered in his name and consequently the appellant had not subscribed for the shares was misplaced because the shares had been issued to Mr Gray on behalf of the appellant