The First Tier Tribunal allowed relief for a capital loss on an irrecoverable loan to a trader, despite the loan having been converted into shares before the loss relief claim was made. 

  • In Timothy Bunting v HMRC [2024] TC09121, Mr Bunting made a series of loans totalling £3,452,771 to a trading company in which his wife was the sole shareholder and director.
  • By 2012, it became clear that the business was becoming unsustainable: the company’s stock was depreciating and its targeted market was falling away. 
  • On 31 January 2013, Mr Bunting and the company agreed to capitalise £2.2m of the loan.
    • 2,200,000 ordinary £1 shares were issued in discharge of part of the loan. The company and shares had no value.
  • On 18 March 2013, £1,325,771 of the loan balance was discharged by the transfer of assets to Mr Bunting.
  • A decision to liquidate the company was made on 28 March 2013 and it entered Liquidation on 14 April 2013.
  • Mr Bunting claimed £2.2m of Income Tax losses in his 2012-13 tax return in respect of the shares issued in January 2013, Under s.131 ITA 2007.
  • During a HMRC enquiry, Mr Bunting accepted that because the shares were of nil value at the time they were issued they had not ‘become of negligible value’. The Income Tax loss relief claim under s.131 was not valid.
  • On 29 February 2016, Mr Bunting sought instead to claim a capital loss under S.253 TCGA 1992 on a loan to a trader in respect of the £2.2m element of the loan for which worthless shares had been issued. 
  • HMRC refused this claim, on the basis that the capitalisation of £2.2m of the loan satisfied that part of the debt: there was no amount of loan outstanding which had become irrecoverable.
  • Following a Statutory review, Mr Bunting Appealed to the First Tier Tribunal (FTT).

The FTT found that:

  • It was necessary to determine whether, when the s.253 claim was made on 29 February 2016, there was an ‘outstanding amount which had become irrecoverable’ in respect of the £2.2m of loan which had been capitalised three years earlier on 31 January 2013. 
  • It could not be said, in any ordinary sense of the word, that Mr Bunting was ‘paid’ £2.2m when the debt was capitalised in 2013.
    • Mr Bunting exchanged a right to enforce the debt for shares in the company, at a time when the shares were worthless.
    • It is not the act of satisfaction which renders a debt no longer outstanding; it is satisfaction for valuable consideration in money or money’s worth. 
      • Where there is valuable consideration, it is reasonable to say that the debt (or part of it) has been paid.
      • To the extent that the value given in money or money’s worth is less than the debt, the excess of the debt over the value given will remain outstanding.
  • Although the debt was satisfied and discharged by the issue of shares, those shares had no value. 
    • Mr Bunting had not received valuable consideration and had therefore been paid £nil against the £2.2m debt.
    • The debt remained unpaid and hence was outstanding at the date the s.253 claim was made.
  • It followed that as of 29 February 2016, there was an outstanding amount of £2.2m which had become irrecoverable. The claim for capital loss relief, under the loans to traders, rules was valid. 

The appeal was allowed.


HMRC's policy, stated in their manuals at CG65934, is to check before relief is given that: 

"At the date of the claim the outstanding amount of the principal of the loan has become irrecoverable. Thus if the loan has been satisfied, for example by way of the issue of shares or securities even though these themselves may be worthless, no relief will be due." 

In this case, the FTT decided against this position. Although the loan had been satisfied by the issue of worthless shares, this was not valuable consideration, meaning that the loan remained outstanding. 

Of course, FTT decisions do not provide a binding president. 

Useful guides on this topic

CGT: Loans to traders relief
What is loans to traders relief? When can it be claimed? What are the conditions of the relief?

Loss relief (Income Tax) disposal of shares
Share Loss relief allows you to offset a loss made on the disposal of shares against income instead of following normal capital loss treatment. 

How do you wind up (liquidate) a company? What types of liquidation are there? What are the formalities and the tax consequences of liquidation?

External link

Timothy Bunting v HMRC [2024] TC09121