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HMRC internal manual

Corporate Finance Manual

Loan relationships: is a guarantee a loan relationship?

Guarantee payments

Where a company guarantees a loan taken out by another person, the guarantor does not have a loan relationship - there is no money debt, or lending of money. Payments under a guarantee are therefore not loan relationships debits.

Once the company has paid the amounts due under the guarantee, it will usually be entitled to reclaim its outlay from the original borrower. Accordingly a loan relationship may exist between the guarantor and the borrower (not between the guarantor and the lender) - see the example at CFM31110.

If the borrower can’t refund the guarantor for the amount paid so that the guarantor writes off or releases the debt, the loss may be an allowable debit as long as the parties are not connected. As most companies giving guarantees are connected to the borrower, it is unlikely that a company can get relief for amounts paid under guarantees in this way.