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HMRC internal manual

Capital Gains Manual

Losses: loans to traders: payments under guarantee: example

A Ltd, B Ltd, C Ltd and D Ltd have jointly and severally guaranteed a bank loan to E Ltd of £100,000.

E Ltd goes into liquidation and it is accepted that the loan has become irrecoverable from E Ltd.

On 1 October 1993 A Ltd pays £100,000 to the bank under the terms of the guarantee.

As at 1/10/93: B Ltd is in a position to meet fully

its liability under the guarantee

C Ltd’s position is such that only

£10,000 is recoverable from it

D Ltd is insolvent and about to go into

liquidation with no prospect of meeting

any liability under the guarantee.

The relief due to A would be:

    £ £
  Total paid   100000
Less agreed payable by C Ltd 10000  
  D Ltd Nil 10000
  Amount to be divided between co-guarantors able to meet their contributions in full   90000
Less payable by B Ltd   45000
  Relief due to A Ltd as at 1/10/93   45000