In HMRC v Timothy Bunting [2025] UKUT 00096, the Upper Tribunal (UT) found that relief for a capital loss on a loan to a sports memorabilia trader was not available as the loan had been satisfied by conversion into shares before the loss relief claim was made.
Mr Bunting made a series of loans totalling £3,452,771 to a company trading in sports memorabilia where 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 (a requirement for relief under s.253).
- Following a Statutory review, Mr Bunting Appealed to the First Tier Tribunal (FTT).
The FTT found that although the loan had been satisfied by the issue of worthless shares, this was not valuable consideration in money or money’s worth, meaning that the loan remained outstanding.
- Mr Bunting had been paid £nil against the £2.2m debt.
- 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.
HMRC appealed to the Upper Tribunal (UT) which, unlike the FTT, found that a loan could not be ‘outstanding’ for the purposes of s.253 TCGA following its voluntary release by Mr Bunting in consideration for shares.
- On a normal usage of the word ‘outstanding’, once a loan has been voluntarily waived or released it is no longer outstanding.
- For Mr Bunting’s 2,200,000 £1 shares to have been issued as fully paid-up, £2.2m of the loan needed to be released under s.583 Companies Act 2006.
- £2.2m of the loan had therefore been satisfied by the issue of shares.
- It did not matter that the value of the shares was less than that of the loan.
- At the time the s.253 claim was made, the loan was no longer ‘outstanding’: there was no ongoing obligation to pay the £2.2m or any entitlement to pursue it.
HMRC's appeal was allowed.
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.
Liquidation
How do you wind up (liquidate) a company? What types of liquidation are there? What are the formalities and the tax consequences of liquidation?
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