Introduction: Why a Negligible Value Claim Stops at the Atlantic
A negligible value claim lets you crystallise a capital loss on a British shareholding that has collapsed, without ever selling it. Furthermore, HMRC will accept the claim while the company still exists. That makes it one of the most useful reliefs open to a UK investor whose portfolio company has failed. Every British accountant knows the mechanism. Almost none of them know what happens next when the investor also holds a United States passport.
That gap matters enormously. Specifically, the Internal Revenue Service recognises no equivalent election. Therefore an American investor in Britain can win full relief from a negligible value claim in one tax year. Meanwhile the IRS may grant nothing for another two or three years. Meanwhile the loss quietly sheds most of its value. The foreign tax credit simply absorbs the British saving.
At TaxYork we see this collision repeatedly among founders, angel investors and fund principals who back early-stage British companies. Consequently this guide sets out both systems side by side. You will find the statutory references, the current 2026/27 figures and a worked example. It shows exactly how much of a £96,000 British saving actually survives.
What a Negligible Value Claim Actually Does in British Law
A negligible value claim operates under section 24(1A) of the Taxation of Chargeable Gains Act 1992. Specifically, it treats you as having sold the asset and immediately reacquired it at its current, negligible value. Accordingly you generate an allowable capital loss equal to your original cost, while continuing to hold the shares. HMRC confirms the mechanism in CG13125 of the Capital Gains Manual, which sits under the broader guidance on assets lost, destroyed or of negligible value.
Notably, HMRC has never published a numerical definition of negligible. Instead the manual applies a plain-English standard: the asset must be worth next to nothing. In practice, a company in administration with no expected distribution to shareholders meets that test comfortably.
The Three Conditions Behind Every Negligible Value Claim
Three conditions govern any negligible value claim, and all three must hold. First, you must still own the asset at the moment you claim. Second, the asset must have become of negligible value while you owned it, so shares bought cheap because they were already worthless do not qualify. Third, the asset must be of negligible value both at the claim date and at any earlier deemed disposal date you specify.
Importantly, there is no deadline running from the moment the shares became worthless. HMRC states plainly that no claim need be made within a specified time of the value collapsing. However, one hard stop exists, and it catches people constantly.
The Dissolution Cut-Off That Ends Your Negligible Value Claim
You cannot make a negligible value claim once the company has been dissolved. Instead, dissolution triggers an automatic deemed disposal at that moment, under general capital gains principles. Consequently the loss still arises, but you lose control over its timing entirely.
That distinction carries real weight for an American investor. Specifically, the year in which the loss lands decides whether it shelters a British gain. Furthermore, it decides whether the resulting British tax still generates enough foreign tax credit to cover your American liability. Losing control of the date therefore means losing control of the cross-border arithmetic.
Using the HMRC Negligible Value List
For shares once quoted on the London Stock Exchange, HMRC publishes an accepted list. Furthermore, shares appearing on that negligible value list are automatically accepted, so no valuation argument arises. The list runs to hundreds of names and includes well-known collapses such as Northern Rock, Woolworths and Thomas Cook.
Unquoted shares work differently. Accordingly you must supply evidence directly, and HMRC may refer the file to its Shares and Assets Valuation team. For a company in liquidation, the office expects the statement of affairs, correspondence from the liquidator on expected shareholder returns, and evidence that recovery is impossible.
Backdating a Negligible Value Claim by Two Years
A negligible value claim may specify an earlier deemed disposal date. Specifically, that date can fall up to two years before the start of the tax year in which you claim, as HS286 for 2026 confirms. A claim made in January 2027 can therefore reach back to 6 April 2024.
You report the claim in box 54 of the capital gains summary pages, SA108, using the code NVC where a disposal code applies. Additionally, remember that a competent claim creates the disposal but does not by itself notify the loss. Therefore you must separately notify HMRC of the allowable loss, within the usual four-year window, or it never becomes usable.
Converting the Capital Loss Into Income Tax Relief
For qualifying trading company shares you subscribed for in cash, a negligible value claim goes further still. Specifically, share loss relief under the Income Tax Act 2007 allows the loss to be set against your total income before personal allowances, rather than only against capital gains. That converts relief worth 24 per cent into relief worth up to 45 per cent.
The conditions are demanding. For shares issued on or after 6 April 2006, the company's gross assets must not exceed £7 million before the issue and £8 million immediately after. Moreover the company must not have been listed on a recognised stock exchange when the shares were issued. Gifts never qualify, although a negligible value claim does count as a qualifying disposal.
The £50,000 Cap and the EIS Carve-Out
Income tax reliefs are capped at £50,000, or 25 per cent of your income if that figure is greater. However, that cap does not apply to losses on shares carrying Enterprise Investment Scheme or Seed Enterprise Investment Scheme relief. Consequently venture capital scheme investors escape the restriction entirely, which is precisely why so many angel portfolios run through EIS.
Where you already claimed EIS income tax relief, you must deduct that relief from the loss. For example, a £10,000 subscription attracting £2,000 of relief leaves £8,000 available. Furthermore, the deadline for claiming share loss relief against income is tight. You must claim within one year of the 31 January following the tax year of the loss. That runs well ahead of the general Self Assessment deadlines.
How the IRS Treats the Same Failed Shareholding
Here the two systems diverge sharply. The United States has no equivalent to a negligible value claim, and it never has. Instead, section 165(g) of the Internal Revenue Code governs worthless securities, and it demands complete worthlessness rather than negligible worth.
Under section 165 of the Internal Revenue Code, a security that becomes worthless during the year produces a loss. That loss is treated as arising from a sale on the last day of the taxable year. Notably, that deemed date can extend your holding period into long-term territory. Additionally, the regulations bar any deduction for mere decline in market value, however severe.
The Identifiable Event the IRS Expects
To sustain the deduction you must show two things. First, the security has no liquidating value. Second, it has no reasonable prospect of future value. Practitioners generally evidence both through an identifiable event during the year. Cessation of trade qualifies, as does appointment of a liquidator expecting no shareholder distribution, or a sale of substantially all assets.
Consequently timing becomes a question of fact rather than election. You cannot choose the year, you cannot backdate, and you cannot file the American equivalent of a negligible value claim simply because the shares now trade at nothing. The IRS explains the general capital loss framework in Publication 550 and summarises the annual limits in Topic 409.
Why the Loss Is Capital and Stays Capital
American capital losses offset capital gains without limit, then reduce ordinary income by only $3,000 a year, or $1,500 if you file separately. Any excess carries forward indefinitely. Therefore a seven-figure failure can take decades to relieve if you hold no other gains.
Two American reliefs might appear to help, and neither does. Section 1244 grants ordinary loss treatment of up to $50,000, or $100,000 on a joint return, but section 1244 applies only to stock in a domestic corporation. Similarly, the qualified small business stock rules require a domestic corporation. Accordingly a British company can never deliver either result, no matter how small or how entrepreneurial it is.
The Timing Mismatch That Destroys the Value of Your Relief
Put the two regimes together and the problem becomes obvious. Britain grants relief while the company still breathes; America waits until it is definitively dead. Therefore a negligible value claim routinely lands two or three years before the matching American deduction.
That sequencing creates a foreign tax credit problem rather than a mere cash-flow delay. Specifically, the British loss reduces your UK tax bill in the earlier year. Consequently there is less foreign tax available to credit against the American tax on the very same gain. You save tax in London and immediately hand most of it to Washington.
Currency Turns One Loss Into Two Different Numbers
Your American basis is fixed in dollars at the exchange rate on the day you subscribed. Meanwhile HMRC measures the loss in sterling. Accordingly the two losses will almost never match, and a strengthening pound between subscription and failure shrinks the dollar loss relative to the sterling one.
The reverse also happens, occasionally to your advantage. Nevertheless you should never assume the figures align. Furthermore, the foreign tax credit rules and Form 1116 work exclusively in dollars, so the sterling figure on your SA108 is merely a starting point.
The Seven-Year Refund Window Almost Nobody Uses
One American rule works strongly in your favour. Ordinarily you have three years to claim a refund. However, section 6511(d)(1) replaces that with seven years from the due date of the return for claims relating to worthless securities.
That extended window is genuinely valuable. Specifically, if you established that a British company became worthless in 2020 and never claimed the deduction, an amended return may still be available today. Consequently we routinely review old portfolio failures when a client first engages us for US tax return preparation.
Case Study: £400,000 Into a Failed London Fintech
Consider a dual national investment banker living in London. In 2021 she subscribed £400,000 for ordinary shares in a British fintech, outside EIS because the company had already breached the gross assets limit. At the then rate of $1.38, her American basis stood at $552,000.
By early 2026 the company sat in administration with no expected shareholder distribution, although it had not yet been dissolved. Meanwhile she had realised a separate £500,000 gain on quoted shares in 2024/25. Her British adviser therefore filed a negligible value claim backdated to that earlier year, which was fully within the two-year window.
The British Saving, and What Survived It
The arithmetic in London looked excellent. Without the claim, her 2024/25 gain of £500,000 less the £3,000 annual exempt amount produced £119,280 of capital gains tax at the 24 per cent main rate. With the negligible value claim applied, the taxable gain fell to £97,000 and the bill fell to £23,280. She saved £96,000.
Now translate that into dollars at $1.27. The same disposal produced a $635,000 long-term gain for American purposes, taxed at 20 per cent plus the 3.8 per cent net investment income tax, giving $151,130. Her British tax of £23,280 converted to $29,566 of creditable foreign tax. Consequently her American bill came to $121,564.
Had she made no claim, the British tax of £119,280 would have converted to $151,486. That would have covered the entire $127,000 of regular American tax, leaving only the $24,130 of uncreditable net investment income tax to pay. Her total American bill would have been $24,130.
The Result Nobody Modelled
Compare the two outcomes honestly. The negligible value claim saved £96,000 in Britain, worth $121,920. Simultaneously it increased her American tax by $97,434. Therefore the net benefit was $24,486, or roughly a fifth of the headline British saving.
Worse still, the American deduction had not yet arrived. The company was dissolved in 2027, at which point section 165(g) finally allowed a $552,000 long-term capital loss. By then, however, she held no offsetting gains, so the loss began a very slow journey at $3,000 a year. In summary, she surrendered four fifths of a British relief and waited three years for an American one she could barely use.
Reporting Duties That Outlive the Investment
A negligible value claim does not end your American filing obligations. Specifically, shares in a private British company remain specified foreign financial assets, so Form 8938 reporting continues until you actually dispose of them. The IRS sets out the thresholds in its FATCA summary for US taxpayers.
Where you held ten per cent or more, Form 5471 duties continue too, and dissolution itself triggers a final-year filing. Notably, an omitted Form 5471 keeps the entire tax year open indefinitely under section 6501(c)(8). Additionally, a cash-rich company can qualify as a passive foreign investment company after a funding round. In that case a worthlessness disposal requires Form 8621 and reports on Form 8949.
Where the Loss Is Sourced
Sourcing deserves a moment. Under the personal property rules, a loss on stock generally follows the residence of the seller. Moreover, a United States citizen counts as American for that purpose. Only a specific foreign residence test changes the answer. Therefore the loss behind your negligible value claim will often be United States source, which means it does not reduce the foreign income supporting your credit. That outcome usually helps, yet it must be confirmed on your facts rather than assumed.
How TaxYork Can Help With a Cross-Border Negligible Value Claim
We model both jurisdictions before anyone files anything. Specifically, we test whether the British relief survives the foreign tax credit. Additionally, we check whether a later claim year produces a better answer. Finally, we ask whether evidencing worthlessness sooner accelerates the American deduction. In our experience, the choice of deemed disposal date is worth more than the claim itself.
We prepare every cross-border negligible value claim alongside the American return, from FBAR and FATCA reporting through to treaty and foreign tax credit optimisation. Furthermore, we prepare the SA108 disclosure and the American return together, so the two never contradict each other. We also review closed years, because the seven-year worthless securities window frequently reopens value clients assumed was gone.
Conclusion
A negligible value claim remains an excellent British relief, and you should absolutely use it when your investment fails. Nevertheless, an American investor must never file one in isolation. The IRS grants no matching election, applies a stricter worthlessness test, and taxes the gain you sheltered in Britain regardless.
Ultimately the question is not whether to claim, but when. Furthermore, the answer depends on your American position in the same year, the currency movement since subscription, and whether share loss relief against income is available. Get that sequencing right and a negligible value claim keeps most of its value. Get it wrong and four fifths of the relief simply disappears across the Atlantic.
Contact Us
Speak to a specialist before you file a negligible value claim. You can book a consultation with our cross-border team, email hello@taxyork.com, or telephone 020 3488 8606. We work with high-net-worth investors, company owners and finance professionals across London and the United States.
Disclaimer
This article provides general information on the tax treatment of a negligible value claim and is not personal tax advice. Tax rules change, and the treatment of any claim depends entirely on your individual circumstances, residence position and filing history. You should obtain professional advice before acting. TaxYork accepts no liability for action taken or omitted in reliance on this article.