If you subscribed for shares in an unquoted trading company and lose money on them, share loss relief lets you set that capital loss against your income instead of only against capital gains. The relief is in Chapter 6 of Part 4 of the Income Tax Act 2007, it can be claimed for the tax year of the loss, the year before, or both, and the claim must be made within 12 months of 31 January after the tax year in which the loss arose.

Why set a share loss against income rather than gains?

A loss on shares is normally a capital loss. It can only reduce capital gains, and if you have no gains it simply sits on your record waiting for one. Share loss relief turns the loss into a deduction from income, so it gives relief straight away, and usually at a higher rate. For gains made from 6 April 2026, Capital Gains Tax is charged at 18% within the basic rate band and 24% above it, while income can be taxed at up to 45%. For people who backed a small company with their own money, often the founder, an early employee or a family investor, this can make a real difference to the cost of a failure. The general rates are in Capital Gains Tax rates.

Which shares qualify?

Section 131 of the Income Tax Act 2007 allows relief for an allowable loss on the disposal of qualifying shares. Shares qualify if either:

  • Enterprise Investment Scheme (EIS) relief is attributable to them, in which case the company is treated as a qualifying trading company; or
  • they are shares in a qualifying trading company which you subscribed for.

HMRC’s helpsheet HS286 explains that you subscribe for shares when the company issues them to you for money or money’s worth. Shares bought from another shareholder, inherited or received as a gift do not qualify, with one exception: shares your spouse or civil partner subscribed for and transferred to you during their lifetime are treated as subscribed for by you. Fixed rate dividend preference shares are excluded. If you hold a mix of subscribed and purchased shares of the same class, only the subscribed part of the loss qualifies.

What makes a company a qualifying trading company?

For shares issued on or after 6 April 1998, HS286 sets out these conditions:

  • Gross assets. For shares issued on or after 6 April 2006, gross assets must not have exceeded £7 million immediately before the issue or £8 million immediately after it. For shares issued between 6 April 1998 and 5 April 2006 the limits were £15 million and £16 million.
  • Unquoted. No shares listed on a recognised stock exchange when your shares were issued, and no arrangements for a listing. A later listing on or after 7 March 2001 does not spoil relief.
  • Trading. The company must exist wholly to carry on qualifying trades, or be the parent of a trading group whose non qualifying activities are not substantial. HMRC generally treats more than about 20% as substantial.
  • Excluded activities. Trades consisting wholly or mainly of dealing in real estate, commodities, futures, shares or other financial instruments do not qualify, nor do trades that are not qualifying trades for EIS or are not run commercially with a view to profit.
  • Trading history. The company must have been a trading company for the 6 years up to the disposal, or for its whole active existence if shorter. If it has stopped trading, relief is still available if it stopped no more than 3 years before the disposal and has not started a non qualifying activity.

Building societies and registered industrial and provident societies are excluded. Shares issued before 6 April 1998 have slightly different conditions, also set out in HS286.

Which disposals give rise to relief?

Section 131(3) limits the relief to four types of disposal:

  1. a sale at arm’s length;
  2. a distribution in the course of dissolving or winding up the company;
  3. the entire loss or extinction of the shares, such as dissolution of the company, under section 24(1) of the Taxation of Chargeable Gains Act 1992; and
  4. a deemed disposal following a negligible value claim under section 24(2).

A gift of shares is not a qualifying disposal. Losses on shares that pass through certain reconstructions or share exchanges are also excluded by section 131(4), although HS286 explains that a share exchange into a new holding company with identical ownership does not prevent relief. When a company fails but has not yet been dissolved, the usual route is a negligible value claim, which has its own conditions: you must still own the shares when you claim, and the shares must have become of negligible value while you owned them. These are covered in negligible value claims.

How is the relief calculated and given?

The loss is calculated in the normal way for Capital Gains Tax. If you claimed EIS Income Tax relief when you subscribed, HS286 requires that relief to be deducted from the loss. For example, £10,000 subscribed with £2,000 of EIS relief gives a loss available for share loss relief of £8,000. The EIS rules themselves are explained in the Enterprise Investment Scheme.

The loss is deducted from your total income from all sources before your Personal Allowance. You cannot restrict the claim to protect your Personal Allowance, so a loss can be partly wasted if your income is low. You can claim against the year of the loss, the previous year, or both in an order you choose. Any loss left over remains a capital loss for use against gains; any part used against income cannot also be used against gains. Where you claim more than one loss relief in a year, HS286 gives priority to share losses of that year, then share losses carried back from the following year, then other Income Tax losses.

Is there a cap?

Section 24A of the Income Tax Act 2007 limits certain deductions from income, including share loss relief, to the greater of £50,000 and 25% of adjusted total income for the year. HS286 confirms the cap does not apply to losses on shares to which EIS or Seed Enterprise Investment Scheme relief is attributable, so losses on SEIS and EIS shares escape it. Losses on ordinary subscribed shares in a family company that never claimed either relief are within it.

How and when do you claim?

The claim must be made within 12 months of 31 January following the tax year of the loss. HS286 gives the example of a loss made in 2025 to 2026, which must be claimed by 31 January 2028. On the same basis, a loss made in 2026 to 2027 must be claimed by 31 January 2029.

Claims are made through the Capital Gains Tax summary pages of the tax return. For a carry back, HS286 asks you to work out the reduction in tax for the earlier year and enter it on the tax calculation summary pages. HS286 says the claim must include at least the company name, its registration number, its country of incorporation and of tax residence if different, the date the loss arose, and which year takes priority if both years are claimed.

What does the relief look like in practice?

Illustration only. In 2019 Alex subscribed £20,000 for ordinary shares in a small unquoted manufacturing company that meets all the conditions. No EIS relief was claimed. The company fails and, in 2026 to 2027, Alex makes a negligible value claim, giving an allowable loss of £20,000. Alex has salary of £70,000 that year and no capital gains, and lives outside Scotland.

Without claim With claim
Total income £70,000 £50,000
Personal Allowance £12,570 £12,570
Taxable income £57,430 £37,430
Income Tax £15,432 £7,486

The claim saves £7,946 of Income Tax, because most of the loss comes off income taxed at 40%. The cap is not reached, since the loss is below £50,000. Had Alex waited and used the loss against a future gain taxed at 24%, it would have saved £4,800.

What mistakes should you avoid?

  • Claiming on purchased shares. Only subscribed shares qualify, unless EIS relief is attributable.
  • Giving worthless shares away. A gift is not a qualifying disposal, and once you no longer own the shares you cannot make a negligible value claim.
  • Waiting until the company is dissolved. After dissolution a negligible value claim is no longer possible, although dissolution is itself a disposal that can produce a loss.
  • Missing the deadline. The window closes 12 months after the 31 January following the tax year of the loss.
  • Overlooking the cap. Large losses on non EIS shares may be limited by section 24A, and the excess is left as a capital loss.
  • Not deducting EIS relief. The loss must be reduced by any EIS Income Tax relief that has not been withdrawn.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.