C3.704 Irrecoverable loans to traders—claim for loss relief
Where a qualifying 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 (see 'Claim for relief by the lender' below), 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 'Claim for relief by the guarantor of a debt' below)
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 conditions are met, the individual can claim an allowable loss should the loan become irrecoverable or the bank calls in the guarantee.
For details of the conditions which must be met for the loan to be qualifying, see C3.703. For a discussion on whether the loan has become irrecoverable, see C3.703A. For details of payments made under guarantee, see C3.703B.
The commentary below concerns the conditions that must be met to make valid claim for the allowable loss and the amount of the loss. Once claimed, the loss can be utilised in the same way as any other allowable capital loss. See C1.502 (capital gains tax) and D1.925 (corporation tax).
If the taxpayer later recovers any amount on which he loss has been claimed, this will be