Those who invest in the shares of private companies have generally been able to reassure themselves that, should the worst happen and the shares become worthless, they can at least make a 'negligible value' claim.

This leads to the shares being treated as if they had been sold and re-acquired at the much diminished value, so that a loss can be claimed for Capital Gains Tax (CGT) purposes that is available to set against future (or same-year) chargeable gains.
However, Harpur v HMRC sounds a warning bell for potential investors in such companies. It involved an investor who bought shares at par value in a company in two tranches, totalling nearly ?? million, between April 2002 and December 2003.

Due to a series of unfortunate circumstances, the business lost money consistently, with the effect that it went into administration in June 2004 and was liquidated in April 2006, with no return of funds to the shareholders.

The investor contended that the shares had become of negligible value by 6 April 2004 and claimed for the attendant CGT loss. HMRC succeeded in their assertion that on an open market value basis required by legislation the shares were already valueless when subscribed for!? The tribunal affirmed that the burden of showing that he is entitled to the relief he claims lies on the taxpayer and in this case, he failed to do so.?

Case: Harpur v HMRC

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