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HMRC internal manual

Business Income Manual

Miscellaneous income: particular sources: loans

S687-S689 Income Tax (Trading and Other Income) Act 2005, S979-S981 Corporation Tax Act 2009

If a person makes a loan or provides money and receives a reward not otherwise chargeable to Income Tax, this is taxable as miscellaneous income under the sweep-up provisions.

This can be seen from the case of Ruskin Investments Ltd v Copeman [1943] 25TC187. In this case, the company had made a loan to a builder. The debt was settled by the builder transferring the ground rents of properties to the company.

The difference between the amount of the loan and the value of the ground rents received was held to be taxable as miscellaneous income. In his judgment at page 198, Scott LJ stated:

‘The result was that the reversion and ground rents of the 249 plots were received primarily in repayment of the capital loan of £15,000; the balance of their rather speculative value was the Company’s remuneration for the service of the loan, taxable [as miscellaneous income].’

In the case of Wilson v Mannooch [1937] 21TC178, the taxpayer was a partner in a firm of solicitors. He verbally agreed with a building company, who were clients of the firm, that, in consideration of the respondent personally lending or arranging for the loan to the company of the purchase price of certain property, the respondent should receive, on the re-sale of the property, one-third of any resulting profit, with a limit of £500. The greater part of the purchase money was provided on first mortgage by certain clients of the respondent’s firm, and the remainder on second mortgage carrying interest at 6 per cent by the respondent personally. The sum of £500 was duly paid to the respondent. Lawrence J said at page 185:

‘In my judgment, the sums received in the present case are not analogous to the appreciation of capital upon the sale of an article, but are, in reality payments to the Respondent for the finding of money, and have the character of income, and not capital.’