Help! The firm I invested in has gone bust

26 June 2019

Q

I have been investing since 2006, and during 2018 for the first time ever, one of the companies I had invested in entered administration. I have recently received a letter which states:

“I write to advise you that the shares have been confirmed as having negligible value for the purposes of a claim under S24(2) Taxation of Chargeable Gains Act 1992, as declared on the HMRC Negligible Value List.”

What does this mean for me?

From
MS/Wolverhampton

A

Shareholders are the owners of listed companies. Holders of ordinary shares have the right to a share in the profits of a company and to attend and vote at company meetings. However, they are the last to be paid out if the company fails. This typically means that if a company goes into administration, its shareholders get very little, if any, money back because other creditors are paid first.

Because of this, investing in individual shares is high risk. For most people it makes more sense to buy investment funds rather than individual shares, as funds invest in a number of shares, which helps to diversify risk. If a share held in a fund goes into administration, this shouldn’t have a major impact. Whereas if you hold the share directly, it can affect your portfolio value significantly unless you hold shares in a large number of companies.

HMRC provides a list of shares with negligible value. This means that they have very little, if any, value. The only good news here is that you may be able to offset the loss you’ve made on the failed share against gains you’ve made on other investments, which could mean that you pay less tax.

Moneywise says: Check out the Moneywise First 50 funds for beginner investors for ideas on what you could consider investing in at: moneywise.co.uk/moneywise-first-50-funds