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Capital loss for guarantee was deductible in the tax year of payment

By Mark McLaughlin, May 2019

A taxpayer’s guarantee payment to a bank was an allowable capital loss for the tax year in which the payment was made and not at an earlier time when funds were deposited at the bank. 

The appellant was part of a venture involving a company (MCE) with the aim of purchasing and developing a site. MCE spent over £1.5 million developing the site in the year ended 28 February 2008 but was unable to continue with the planned development due to the property price slump in 2008.

Ulster Bank had approved an overdraft facility and loan to MCE. The terms and conditions of the overdraft and loan included an unconditional guarantee from the appellant and his wife of £230,000, guaranteeing MCE’s liabilities to the bank.

In April 2009, the sum of £295,700 was paid into a personal bank account of the appellant and his wife.

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