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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Losses: loans to traders: irrecoverability: general

A loan may be accepted as having become irrecoverable for the purposes of TCGA92/S253 in any case where, having considered the claim, you come to the view that there was in fact no reasonable prospect of recovery of the loan as at the date claimed. You will need to consider not just funds currently available, but funds potentially available. A claim under TCGA92/S253 cannot, therefore, be established simply by looking at the balance sheet of the borrower and saying that, on the basis of that balance sheet, if the loan had been called in at that date, the borrower would not have been able to pay it. If the borrower continued to trade, even if at a loss, the initial presumption should be that the loan remains recoverable. (But see also CG65952). Where the borrower has ceased to trade at the date of the claim, you should resist claims where it is evident that the borrower has a reasonable prospect of being able to repay the loan in the future.