Many people subscribe for shares in unlisted companies. These can include companies that your friends own.
A number of these companies will fail and therefore the original investment is lost.
Allowable losses on these shares can be set against income rather than used as a capital loss, which is especially useful if you have no other gains during the year or are unlikely to make capital gains in the future.
Example:
Louise subscribed for 1,000 shares in ABC Ltd, a company set up by her brother, and paid £10,000 for them. They are now worthless as the company has closed down. She pays tax at 40%.
By claiming income tax relief on this capital loss, she recovers £4,000 of the loss. Had she claimed relief as a capital loss, she would only have recovered £2,800 of the loss.
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