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Deed of novation relating to overdrawn director’s loan account resulted in an income tax charge as a release of indebtedness

By Mark McLaughlin, July 2025

The terms of a novation deed gave rise to the taxpayer’s release from his obligations to a close company in respect of an overdrawn director’s loan account, such that it fell within the scope of an income tax charge under ITTOIA 2005, s 415. 

Summary 

The terms of a novation deed gave rise to the taxpayer’s release from his obligations to a close company in respect of an overdrawn director’s loan account, such that it fell within the scope of an income tax charge under ITTOIA 2005, s 415. 

Background 

The appellant was the director of a close company (T) and the sole shareholder prior to 2 July 2020. On that date, following a share-for-share exchange, another company (PHSW) became T’s holding company. During the tax year 2020/21 and on a continuing basis, the appellant was a director of PHSW. 

T incurred expenditure on behalf of or

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