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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Losses: loans to traders: recovery: co-guarantors: corresponding amounts

Where relief has been restricted in this way and contributions are in fact recovered from those co-guarantors, Section 253 (6) will not apply to impose a charge. This is because the contributions recovered will correspond to payments under the guarantee for which relief has NOT been given.

A bank loans X £10,000 and the conditions of TCGA92/S253 are satisfied. The whole of the loan is jointly and severally guaranteed by A and B. X is in a hopeless position and the bank calls in the guarantee. A pays the full £10,000 in June 1990. The Inspector agrees that the loan has become irrecoverable from the borrower, but decides that B’s share of the guarantee payment remains recoverable from B. A’s loss is computed as follows-

  £
   
Payment in respect of principal 10,000
less amount payable by B 5,000
Loss for 1990-91 (£5,000)

In December 1990, A recovers £3,000 from B. B is entitled to relief in respect of that £3,000, but A will not face a charge under Section 253 (6) because the £3,000 recovered corresponds to part of the £5,000 which did not qualify for relief. None of the allowable loss corresponds to the amount recovered.