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HMRC internal manual

Trusts, Settlements and Estates Manual

Capital items that are income for tax purposes: Trust income and gains: loans written off ICTA88/S421

A close company may write off a loan or advance that it made to a shareholder or related person. For tax purposes, the amount it releases or writes off is treated as that person’s income.

Although under trust law it is capital, the amount written off is deemed to be income for tax purposes and in an accumulation or discretionary trust is liable at the dividend trust rate.