Share loss relief and CGT relief for loans to traders go global

Share loss relief can be claimed on the disposal of certain shares by individuals and investment companies. For individuals, this can be particularly valuable as it allows the loss to be offset against income which is generally taxable at higher rates than capital gains. One of the conditions for shares to qualify for share loss relief is that the company (in which the shares were held) carries on its business wholly or mainly in the UK.

CGT relief is available on certain loans to traders where there is no reasonable prospect of the loan being repaid. One of the conditions for this relief is that the borrower must be UK resident.

On 24 January 2019, the European Commission issued infringement decisions stating that both share loss relief and the tax relief on loans to traders imposed an unjustified restriction on the free movement of capital (Article 63 of TFEU) and gave the UK two months to respond before the commission would make a decision to bring cases before the Court of Justice of the EU.

The draft Finance Bill clauses include changes to both the share loss relief rules and the loans to traders rules that will apply from 24 January 2019.

In the case of share loss relief, the requirement that the company carries on its business wholly or mainly in the UK will be repealed and will apply to disposals on or after 24 January 2019. An additional reporting requirement will be introduced whereby claimants will have to tell HMRC the tax residency of the issuing company, although this reporting requirement is not reflected in the draft clause.

For loans made on or after 24 January 2019, the requirement that the borrower is UK resident will no longer apply for CGT loss relief on loans to traders.