The recent case of Bunting v HMRC [2026] EWCA Civ 1331 highlights a serious trap when it comes to claiming capital gains tax loss relief where money lent to a trading company becomes irrecoverable. Sadly, not an unusual situation.
Mr Bunting had lent £2m to his trading company and it had become irrecoverable. TCGA 1992 s 253(3) provides that an allowable loss arises for CGT purposes when ‘a person who has made a qualifying loan makes a claim and at that time … any outstanding amount of the principal of the loan has become irrecoverable’.
That sounds fine – except that Mr Bunting decided to convert the loan into shares. He received some shares in the company in satisfaction of the loan. (The shares were worthless and I think the idea was to get an income tax deduction for a loss on the shares. Er, whoops.)
HMRC refused his claim for relief on the grounds that the loan was discharged by the issue of shares, so at the date of his claim there was no ‘outstanding amount’ as required by s 253(3).
The Court of Appeal has now authoritatively held that there must be an amount outstanding to satisfy the terms of s 253(3). The loan ceased to exist when it had been applied in the subscription of the shares and could not be regarded as outstanding.
Everybody agreed that Mr Bunting had made a genuine loss which satisfied the terms of s 253 and he would have been entitled to make a claim for relief before he subscribed for the shares. But he didn’t. The acquisition of the shares deprived him of the relief even though the shares were worthless.
The recent case of Bunting v HMRC [2026] EWCA Civ 1331 highlights a serious trap when it comes to claiming capital gains tax loss relief where money lent to a trading company becomes irrecoverable. Sadly, not an unusual situation.
Mr Bunting had lent £2m to his trading company and it had become irrecoverable. TCGA 1992 s 253(3) provides that an allowable loss arises for CGT purposes when ‘a person who has made a qualifying loan makes a claim and at that time … any outstanding amount of the principal of the loan has become irrecoverable’.
That sounds fine – except that Mr Bunting decided to convert the loan into shares. He received some shares in the company in satisfaction of the loan. (The shares were worthless and I think the idea was to get an income tax deduction for a loss on the shares. Er, whoops.)
HMRC refused his claim for relief on the grounds that the loan was discharged by the issue of shares, so at the date of his claim there was no ‘outstanding amount’ as required by s 253(3).
The Court of Appeal has now authoritatively held that there must be an amount outstanding to satisfy the terms of s 253(3). The loan ceased to exist when it had been applied in the subscription of the shares and could not be regarded as outstanding.
Everybody agreed that Mr Bunting had made a genuine loss which satisfied the terms of s 253 and he would have been entitled to make a claim for relief before he subscribed for the shares. But he didn’t. The acquisition of the shares deprived him of the relief even though the shares were worthless.
