Backdating capital gains

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When a taxpayer makes a negligible value claim, they are treated as if they had sold the asset and immediately reacquired it for its value at the time the claim is made.This results in a capital loss that the taxpayer can set against capital gains and, in some cases, income.Whether the goodwill has become of negligible value is a question of fact.It is not enough to show that it has been written off in the accounts.For instance, if a partnership agreement includes a clause that retiring partners will not be paid for goodwill and new partners do not need to buy goodwill, the goodwill becomes worthless to a partner on retirement. Although the goodwill has become of negligible value to the retiring partner, the goodwill of the partnership as a whole has not.In some circumstances, the loss arising from a negligible value claim can be set against income, either of the same or the preceding tax year (or both) instead of against capital gains.

A partner can claim that their fractional share of goodwill has become of negligible value only if that of the entire partnership has become likewise.A negligible value claim is also possible on purchased goodwill.However some basic conditions must be met, namely that the taxpayer still owns the asset at the time of the claim and the asset has become of negligible value since it was acquired.An allowable loss may, however, arise under TCGA 1992 s 24(1), whereby the entire loss, destruction, dissipation or extinction of an asset constitutes a disposal of it for the purposes of TCGA 1992.The disadvantage of this is that such losses cannot be backdated like negligible value claims, so they will only be available to use against gains in the current tax year (or to carry forward for use against future gains).

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