Capital losses on free shares offers

[Dave12335]

Hi tax friends,

I received some free fractional shares ( outside an ISA ) by participating in "Invite a Friend" referrals on various investing platforms. The shares dropped in value and I've since sold them.

Am I able to claim a capital loss on these free shares ? Specifically, is the CGT base cost deemed to be themarket value at acquisiton date ( s17 TCGA 92 ) ?

Thanks

[someone]

No. Their acquisition cost is whatever you declared as income for them at the time you were given them. I'm guessing you didn't declare them so their acquisition cost will be zero.

(Pretty sure you should have declared them as income and paid income tax at the time though)
https://community.hmrc.gov.uk/customerforums/sa/e5916c83-445e-ef11-a4e5-6045bd0b3238

This is "a bargain at arms length" as you were given them in return for doing something and anybody could have got the same for doing the same. Bargain at arms length applies even if you are connected persons provided the same or essentially the same terms would be offered to an unconnected person.

[Dave12335]

Hang on, this probably makes all the difference: - I received them as a referEE not a referER.

So I think the receipt isn't taxable, eg this:
https://community.hmrc.gov.uk/customerforums/sa/d2e06e92-2e74-ef11-a4e5-000d3a86d651

That makes all the difference, right ?

[someone]

OK, yes, the receipt isn't taxable, but the acquisition cost is zero. Similar to this:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg56820
and
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg13028

[Dave12335]

Is that your considered opinion ? I don't think that's relevant. Those links and s217 is about amalgamations of building societies, the transactions I'm talking about don't involve that at all.

[bd6759]

S17(1) TCGA 1992 cannot apply because of S17(2). There is no corresponding disposal.

Your allowable expenditure is nil.

[Dave12335]

Sorry I don't follow, why is there no corresponding disposal ?

If it helps, the shares acquired are not of the investing platform itself, they're just regular investments eg Coke, Pepsi etc

[someone]

You acquired these shares as part of a commercial transaction and therefore the acquisition cost is the price you paid, which was zero.

It is irrelevant that the company could have sold them for more elsewhere. It is also irrelevant if you managed to extract the shares without giving the company any more money or business. They will be anticipating that, on average, these share giveaways make them more money than not giving the shares away.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14541

https://www.gov.uk/hmrc-internal-manuals/shares-and-assets-valuation-manual/svm107110

Note in particular on that second link that the presumption is that a transaction between unconnected parties is a transaction at arms length. S18 reverses that presumption for connected parties.

[Dave12335]

Yup, I see - the deemed MV rule in s17 TCGA doesn't apply as it was a commercial bargain at arm's length, given it was an investment platform ( eg not a family member etc ).

So acquisition base cost is NIL.

Thanks guys, good job !

[bd6759]

The deeming rule doesn’t apply because there is no disposal. The company hadn’t disposed of anything. It has issued new shares. That is not a disposal.