If he sells his shares now he would realise a capital loss which he could carry forward against any gains in the UK for up to seven years.

Remember there are significant CGT exemptions in the U.K. - you only get taxed on gains exceeding #10,000 per annum, so it could be a long while before he gets to offset the loss anyway.

If he sells in the US he believes that witholding tax of 31% is deducted on the proceeds immediately irrespecive of gain or loss and he then has the hassle and delay of claiming back. Is this so?

No; at least not in my experience. My proceeds from trading are all gross.

Also he doesnt know whether or not a capital loss in the UK can be set aginst any gain in the US rather than using it in the UK when (or if) he returns.

I think he can set his loss in the UK against any U.S. gains as long as he makes the trades in the same residency period. I don't think he can take the loss if he is UK resident when he sells, and US resident when he makes gains. However, you/he would really have to consult tax code as this area is fairly complex.

If I were him, I'd take the loss when I was a US resident and offset against US income. The CGT provisions in the UK are far more generous than the US ones, and I think he'll definitely get more benefit offsetting the loss against income.