A negligible value claim allows you to treat an asset as though it were sold and immediately reacquired at its current (negligible) value. This crystallises a capital loss without requiring you to actually sell the asset. The loss can then be set against capital gains in the current or future years.
For shares, negligible value claims are relatively common — when a company goes into administration and the shares become worthless, shareholders can claim the loss. For property, the scope is much narrower.
When can a negligible value claim apply to property?
A negligible value claim is available where the asset has become of negligible value — meaning it is worth virtually nothing. For physical property, this is rare but can occur in specific circumstances:
Structural failure: A building that has subsided catastrophically, or a property condemned as structurally unsafe and demolished by a local authority, may have reached negligible value. If the site value itself is not negligible, however, the land still has value and the claim will not apply in full.
Flooding or irreparable damage: A property that has been destroyed or rendered permanently uninhabitable by flooding, fire, or other disaster, where insurance has not covered the full loss and the land value is also diminished, may support a negligible value claim.
Legal or title defect: A property with a fundamental title defect that makes it unsaleable — for example, where it emerges that the seller did not have good title — may be of negligible value. However, in practice, such defects often give rise to claims against solicitors or under title insurance, complicating the picture.
Development rights or options that lapse: An option to acquire land that lapses without being exercised becomes worthless. The person who paid for the option can claim a capital loss on the option cost.
What a negligible value claim does not cover
A property that has simply fallen in value — even sharply — cannot be the subject of a negligible value claim. The asset must be of negligible value, not merely reduced in value. A property worth £50,000 when you paid £200,000 for it is not of negligible value; the loss is only crystallised on an actual sale.
A claim cannot be made on a property you still occupy, on the basis that you would not be able to sell it. The market value test is objective.
How to make the claim
A negligible value claim is made to HMRC, typically by letter or through the Self-Assessment return. The claim must state the date at which the asset became of negligible value (which can be backdated up to two years). This allows the loss to be treated as arising in a prior tax year, which can be useful if you have gains in that year against which to offset it.
HMRC may challenge the claim if the evidence is not clear. You need to demonstrate that the asset had negligible value at the claimed date — engineering reports, surveyor's opinions, insurance correspondence, and local authority notices all support the claim.
The insurance complication
If a property is destroyed by fire or flood, an insurance payout is treated as proceeds of a disposal for CGT purposes (under the part-disposal rules for capital sums derived from assets). This means:
- If the payout equals or exceeds the base cost, there may be a gain
- If the payout is less than the base cost, there is a loss
- If the property is reinstated using the insurance proceeds, a reinstatement election may be available to defer the gain
A negligible value claim and an insurance payout can interact — if you received a partial payout and the remaining asset is of negligible value, you may be able to claim a loss on the residual value. Getting the computation right requires careful analysis.
CGT losses and the 60-day return
A CGT loss on a property disposal generally does not trigger the 60-day return obligation for UK residents (losses do not create a tax charge). However, the loss can be reported to HMRC and used against gains in the same or future years.
If you have a situation where a property has become worthless or been destroyed, and you want to understand whether a negligible value claim or a loss on disposal applies, the calculation needs to be reviewed by a qualified adviser. Start a conversation with LetsFile — the Chartered Accountant/Chartered Tax Advisor who reviews every return can advise on whether a claim is appropriate and how to document it.