Section 253 of TCGA 1992 provides relief for irrecoverable amounts of loans made to traders in the form of a deemed capital loss, which can be relieved in the same way as an actual capital loss. Relief may therefore be claimed against capital gains of the year of claim or carried-forward to the first available gain(s) of subsequent tax years.
However, the legislation also permits a claim to specify an earlier date, not more than two years before the tax tear of the actual claim, provided that the amount was also irrecoverable at that earlier date. On this basis, your client could make a claim for the current tax year, but also for either of the two preceding tax years 2017/18 or 2018/19 if this were more beneficial, providing that it can be shown that the loan was irrecoverable in the earlier years.
The relief is claimed on the capital gains pages of the self-assessment tax return in the same way as an actual loss would be claimed.
HMRC’s view is that claims cannot be made for part-only of the amount outstanding at the time of claim, except in the following circumstances:
“…a claim that a part of an outstanding amount of a loan has become irrecoverable may be admitted where:
- the debtor has been placed in bankruptcy, receivership or liquidation: and
- the receiver or liquidator has announced an anticipated dividend in respect of unsecured debts and has indicated that no further dividends are likely.’
(HMRC Capital Gains Manual, CG65956).
Relief under these provisions is also available to companies, but only where relief cannot be obtained under the Loan Relationships legislation (s.253(3) TCGA 1992).
Please note that for loans made before 24 January 2019 the borrower is required to be resident in the UK. However, a proposed amendment in the 2019/20 Finance Bill is due to remove this condition so that claims can be made regardless of the borrower’s tax residency – https://www.gov.uk/government/publications/capital-gains-tax-relief-on-loans-to-traders/capital-gains-tax-relief-on-loans-to-traders
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