Capital Loss query

Capital Loss query

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I have a situation where a company has loaned money to another which has now gone into liquidation and it will not get its money back. The business natures were completely separate and the money had been provided to help fund the new business activities, but unfortunately never got off the ground and it has been decided to wind it up.

The lender company is owned by Mr A who was also a 50% shareholder in the borrowing company.

Is this irrecoverable loan just purely a capital loss in the books of the lender.?
As it is between connected persons then can the loss still be carried forward and set off against any future capital gains.?

Thank you for any help
david

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By AnonymousUser
27th Apr 2007 11:18

Loan relationship
You are looking at loan relationship rules. Unless there are special circumstances, the loan write off should be a non trading loan relationship debit allowed against income and gains other than trading profits.

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By User deleted
27th Apr 2007 12:44

To clarify.
Thank you Jim for that.

So just to clarify then.To get relief for it I am looking at getting offset against for example 'any interest receivable' which is non trading.Anything else.?

I also assume that for a loan to be 'trading' you would have to demonstrate that the money was for trading goods and services between the two companies? You could then offset against trading profits.?

Many Thanks

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By User deleted
08th May 2007 08:58

Connected party rules
David might want to consider the loan relationship connected party rules. Mr A may have control over both the borrowing company and the lending company. The relevant definition is in FA 1996 s87(3)(b).

If the two companies are connected, the next step is to consider the restriction on the recognition for tax purposes of losses under the impairment rules. Broadly these rules treat the impairment as non events for both parties.

The further step would then be to consider whether the exception to the above rule for insolvency of the borrowing company applies. Broadly this would reinstate the loss relief for the lending company. The latter two rules are in FA 1996 Schedule 9 paragraphs 6 and 6A.

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