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Capital loss relief for loans to traders not due following capitalisation of loan

By Mark McLaughlin, May 2025

The First-tier Tribunal (FTT) made errors of law in concluding that the taxpayer was entitled to make a capital loss relief claim following the capitalisation of a loan, and that a qualifying loan cannot be ‘outstanding’ for the purposes of TCGA 1992, s 253 following its voluntary release by the lender in consideration for shares.  

The respondent taxpayer (TB) wanted to establish a business dealing in sports history books and memorabilia. In July 2004, a company (RSL) was incorporated, which was capitalised by one ordinary share of £1. The business activities were funded by TB, who personally invested £3,452,771 through a series of non-interest-bearing loans (the loan). 

By 2012, it became apparent that the business was becoming unsustainable. In January 2013, TB and RSL entered into an agreement for the capitalisation of £2,200,000 of the loan. Pursuant to that agreement, RSL issued 2,200,000 ordinary £1

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