How to claim relief for losses on loans to traders

Ken Moody finds no specific HMRC guidance on the procedure for claiming a capital loss when money lent to a trader becomes irrecoverable and suggests practical solutions. Relief for a capital loss on a loan to a trader may be claimed by the lender (under TCGA 1992 s 253), where the money has been used wholly for the purposes of the trade, but the debt has ‘become irrecoverable’.

An odd feature of TCGA 1992, s 253 is that, unlike claims for tax reliefs generally, section 253 contains no time limit for making a claim. Instead, for the purposes of section 253, the capital loss is deemed to accrue when the claim is made. So, in principle, a claim may be valid many years after the loan had gone bad.

However, the claim does require evidence as regards the loan having been:
1. made to the trader;
2. recoverable at the time it was made;
3. used by the trader for the purposes of the
trade; and
4. irrecoverable at the time of the claim.

HMRC regards a loan as having become irrevocable where there is ‘no reasonable prospect of recovery’ (see HMRC’s Capital Gains Manual at CG65950). HMRC will deny relief, however, if the loan was irrevocable at the time it was made (as the debt would therefore not have become irrevocable). Also, HMRC will only exceptionally accept a claim while the business continues to be carried on, on the basis that there remains some prospect of recovery (see CG65952).

There is much more in the guidance which will repay careful study; however, the focus here is on the practicalities of making a TCGA 1992, s 253 claim. HMRC states in its guidance at CG65940: ‘… in practice any clear indication by the lender or his agent that relief is sought in respect of a specific irrecoverable amount should be accepted as a valid notice of claim.’ A standalone claim should, therefore, suffice, and HMRC ought to give effect to it.

The approach taken by most advisers, though, would be to make the claim via the client’s self-assessment return, if possible. There is a further ‘twist’ to mention at this point, which is that a claim by an individual may specify an earlier time within the previous two tax years when the loan is considered to have become irrecoverable. The loss under TCGA 1992, s 253 is then deemed to have accrued at that time.

Example: Which tax year?

Jim made a loan to his brother’s trading company in 2018 to buy equipment. Unfortunately, the trade faltered and had been loss-making since the beginning of 2024. On 1 July 2026, the company is placed in liquidation with no recovery of the loan expected. In due course, Jim could make a TCGA 1992, s 253 claim for the loss in his 2026/27 tax return.

He
would complete the self-assessment capital gain summary SA108 (‘Other property, assets and gains’) to include the accrued loss at box 19. Box 20 should be completed ‘OTH’ to indicate that a (unspecified) claim for relief is being made (see CGN3 of the notes to SA108).

Details of the claim should then be entered at Box 54 (any other information). If it is considered that the debt had become irrecoverable at any time during 2025/26 or 2024/25, Jim could make the claim when completing or by amendment of his 2025/26 return (by virtue of TCGA 1992, s 253(3A)). Similarly, he has until 31 January 2027 to amend his 2024/25 return.

Practical tip

Suggestions for inclusion at Box 54 or separate attachment might include:
• an indication that a claim for relief is being made under TCGA 1992, s 253;
• the original amount of the loan, the borrower, the date, and the use of the money (with any documentary evidence, e.g., the loan agreement appended);
• evidence of irrecoverability (e.g., cessation of trade, liquidation, receivership); and
• a statement; the outstanding amount of the loan of £[amount] has become irrecoverable, and the right to recover that amount has not been assigned.

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