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Irrecoverable loan to trader

Produced by a Tolley Personal Tax expert
Personal Tax
Guidance

Irrecoverable loan to trader

Produced by a Tolley Personal Tax expert
Personal Tax
Guidance
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This guidance notes sets out the provisions under which an irrecoverable loan to a trader may be treated as a capital loss.

Tax relief for private loans to businesses which become irrecoverable

Overview

Without specific provision, irrecoverable loans to traders, such as might be provided by relatives to a trader, or by directors to companies, would not be available for tax relief as capital losses. This is because ā€˜simple debtsā€™, that is debts held by the original lender, which are neither ā€˜debts on securityā€™ or gilt-edged securities, are not chargeable assets for capital gains tax, see CG53408.

This could be seen as a disincentive to business lending. A remedy is found in TCGA 1992, s 253. This section permits relief on a ā€˜qualifying loanā€™. Relief is available on a claim, and the agreed amount is then available for loss relief under the usual provisions. See the Use of capital losses guidance note.

A qualifying loan is one is used in a trade. The trade for which the money is lent must not be one of money lending, and

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  • 27 Mar 2025 10:10

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