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HMRC internal manual

Capital Gains Manual

Losses: loans to traders: payments under a guarantee

A guarantor of a loan has no asset until he makes, when called upon to do so, a payment under the guarantee. At that time, he acquires part or all of the rights of the original lender against the borrower; if there were a number of co- guarantors, he may also acquire rights against those co-guarantors. Any such payments are not, however, regarded as the cost of acquisition of those rights, see CG53500+. In consequence, relief would not be available in respect of payments made under guarantees on normal capital gains principles. However, the provisions of TCGA92/S253 deem allowable losses to arise in certain circumstances where loans to traders have become irrecoverable, and in consequence the guarantor has been called on to pay an amount under the guarantee. The conditions for relief are described at CG65990+.