Capital Gains Tax relief on loans to traders
Published 11 July 2019
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This publication is available at https://www.gov.uk/government/publications/capital-gains-tax-relief-on-loans-to-traders/capital-gains-tax-relief-on-loans-to-traders
Who is likely to be affected
Persons who make loans to individuals, partnerships and companies for the purposes of an ongoing trade, profession or vocation, or the setting up of trade, and that loan subsequently becomes irrecoverable.
General description of the measure
This measure widens the scope of the Capital Gains Tax relief in respect of loans to traders, so that it applies to loans made to traders located anywhere in the world and not just the United Kingdom.
Policy objective
This measure is designed to benefit individuals, by widening the scope of relief for loans to traders so that it also applies to loans made to individuals, partnerships and companies located outside the UK, and the loan subsequently becomes irrecoverable.
Background to the measure
The European Commission issued a reasoned opinion on 24 January 2019. The Commission argued that section 253 breaches the free movement of capital as guaranteed by Article 63 of TFEU.
On 23 June 2016, the EU referendum took place and the people of the UK voted to leave the European Union. Until exit day, the UK remains a full member of the EU and all the rights and obligations of EU membership remain in force. During this period the government will continue to negotiate, implement and apply EU legislation.
Detailed proposal
Operative date
This measure will have effect from 24 January 2019.
Current law
Capital Gains Tax relief for loan to traders can be found in section 253 Taxation of Chargeable Gains Act 1992. It applies where a loan is made to a UK company, sole trade or partnership for the purposes of an ongoing trade, profession or vocation, or the setting up of trade, and the loan subsequently becomes irrecoverable.
To qualify for relief the loan must be to a borrower:
- who is resident in the UK
- uses the money wholly for the purposes of a trade, profession or vocation
- to set up a trade as long as they start trading
Relief is only due if there is no reasonable prospect of the loan ever being repaid, and where claimed it allows a person to write the loss off against chargeable gains.
Proposed revisions
Legislation will be introduced extending the relief so that it applies to borrowers who are located anywhere in the world.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
The measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will only impact on a small number of individuals who currently make loans to trading businesses outside the UK.
This measure will benefit those individuals, by widening the scope of relief for loans to traders so that it applies to loans made to individuals, partnerships and companies located outside the UK, and where the loan subsequently becomes irrecoverable.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is not anticipated to have an impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will benefit a very small number of individuals, partnerships and companies who have made loans to an overseas company, sole trader or partnership for the purposes of an ongoing trade, profession or vocation, or the setting up of trade, and the loan subsequently becomes irrecoverable.
The impact on admin burdens is expected to be negligible. One off costs include familiarisation with the tax changes and making a decision on whether to make claim for the loss. Ongoing costs may include claiming the relief.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be a negligible operational impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Nick Williams on telephone: 03000 585660 or email: capitalgains.taxteam@hmrc.gov.uk.