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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Losses: loans to traders: making loan/date irrecoverability claimed

When considering claims to irrecoverability it is important to establish exactly when the loan was made and compare this with the date or dates on which irrecoverability is claimed, see CG65941. Where the time gap between the making of the loan and the date on which it is claimed to have become irrecoverable is small, it may be advisable to ask what happened to the business in that period. There are two points to consider:

  • IF THE LOAN WAS RECOVERABLE WHEN MADE, WHAT HAPPENED TO MAKE IT IRRECOVERABLE SO SHORTLY AFTERWARDS? Your enquiries may indicate that, in fact, irrecoverability cannot be accepted at the relevant date because there was no material change in the fortunes of the business during the period in question. If the loan was recoverable when made, it remained recoverable at the relevant date. It is possible, of course, that irrecoverability may be accepted at some later date.
  • WAS THERE ANY REASONABLE PROSPECT OF RECOVERY OF THE LOAN AT THE TIME IT WAS MADE? It may be that the business was in such difficulties at the time the money was loaned that it should be regarded as irrecoverable from the outset. If this is the case, no relief will be due as Section 253 (3)(a) refers to the outstanding principal of a loan which HAS BECOME irrecoverable. Section 253 does not grant relief in respect of loans which were irrecoverable when they were made.See CG65954 and CG65957 where more than one loan has been made.