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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Losses: loans to traders: other conditions for relief

Before relief can be given on a claim, you will need to check that

  • at the date of the claim the outstanding amount of the principal of the loan has become irrecoverable. Thus if the loan has been satisfied, for example by way of the issue of shares or securities even though these themselves may be worthless, no relief will be due. (If, however, there is an outstanding amount of the principal of the loan which has become irrecoverable prior to the claim, the fact that the loan has then been waived before the claim is made will not preclude relief. In Crosby v. Broadhurst (SpC416) the Commissioners said; “We see nothing in the statutory words to support the view that the accident of waiving a loan, and not for reasons which come within subsection (12), before rather than after a claim is made disqualifies the lender from the relief.”);
  • the loan is not taken into account for Income Tax purposes, Section 253 (10);
  • the loan has not been assigned, Section 253 (3)(b);
  • the loan has become irrecoverable other than as a consequence of:

    • the terms of the loan, or
    • arrangements of which the loan forms part, or
    • any act or omission by the lender,

see CG65958;

  • the loan is not between spouses or civil partners, or between individuals who subsequently became spouses or civil partners prior to the date of the claim. For this purpose, spouses means a husband and wife living together and civil partners means civil partners of each other living together, as in ICTA88/S282, which is applied for these purposes by TCGA92/S288 (3), see CG22070;
  • the loan is not between companies in the same group, or companies which subsequently became members of the same group prior to the date of the claim, Section 253(3)(c). You should note, however, that where the loan is made to a company in a group and the loan is passed on by the original borrowing company to a fellow group company, WHICH IS TRADING and uses the money advanced for trading purposes, a claim may be made by the original lender, Section 253 (2).

For this purpose, group means the capital gains group as defined in TCGA92/S170, see below and CG45000+, and trading company is as defined in TCGA92/SCH6/PARA1. With effect from 2003-2004 the definition of trading company is to be found at TCGA92/SCHA1/PARA22.

FA2000/SCH29/PARA1 changed the definition of a group in TCGA92/S170 by removing the requirement that group members had to be resident in the UK. In deciding whether companies are in the same group for the purposes of TCGA92/S253 (3), you must consider the date on which the loan was made. If this was before 1 April 2000, the group is defined by reference to the rules before FA2000, so that only companies resident in the UK can be members of a group. If the loan was made on or after 1 April 2000, the new group definition applies. For relief under Section 253 (4), in determining whether a guarantor and a borrower are in the same group (see CG65993) the rules in FA2000 are followed if the guarantee was given on or after 1 April 2000.