C3.703 Irrecoverable loans to traders—loans qualifying for relief
Where a loan is made to a trader and subsequently becomes irrecoverable, it may be possible for either1:
• the lender to make a claim for an allowable capital loss on the amount of the loan that is irrecoverable, or
• the guarantor to make a claim for an allowable capital loss on the amount of the payment made under the guarantee in relation to the irrecoverable loan (see C3.703B)
It is common for an individual to lend money to their own trading company or act as guarantor to a loan made by a bank to their trading company. Provided the relevant conditions are met, the individual can claim an allowable loss should the loan become irrecoverable or the bank calls in the guarantee.
For relief to be available under the provisions of TCGA 1992, s 253 the loan must be both qualifying (see below) and have become irrecoverable (see C3.703A).
For the details of the allowable loss claim and the amount of the loss, see C3.704.
For commentary on the position where the taxpayer later recovers any amount in relation to which the allowable loss has been claimed, see C3.705.
Conditions for the loan to be qualifying
For the purposes of relief under TCGA 1992, s 253 only, a qualifying loan is one where2:
• the money lent is used by the borrower (ie the trader—sole trader, company or partnership) wholly for the purposes of their 'trade' (which must not be a trade the consists of