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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Solicitors: Temporary loans and guarantees

Deductions for costs of loaning money to clients

Some solicitors are prepared to make temporary loans to clients to facilitate legal transactions already in progress. For example, if a client cannot pay for the house he is buying until he has been paid for the house he is selling, the solicitor may make a bridging loan so that the purchase can proceed as planned.

In some cases the solicitor himself borrows temporarily from his bank for the purpose. In this situation, interest received and paid on such temporary borrowings may be regarded as a professional receipt or expense of the solicitor’s practice so long as the only purpose is to remove an obstacle to the progress of professional legal work (see BIM37770).

A loss on a temporary guarantee given by a solicitor in order to expedite a particular legal transaction may similarly be allowed Jennings v Barfield [1962] 40 TC 365 (see BIM37775).

Tax treatment of interest received on such loans

Interest received by a solicitor other than on a temporary loan relating to a transaction in hand should be regarded as savings income and taxed as such (see BIM65801).


An advance to a speculative builder, although it may generate future legal business, should not be regarded as an integral part of the professional activities, therefore any expenses associated with the loan are not allowable deductions from the solicitor’s trading income.

If the borrower fails to repay the loan, any claim to deduct the loss as an expense of the practice or as a bad debt should be refused (see BIM42710), although it is possible that a capital loss could be claimed in relation to the default (see CG65900).