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Court of Appeal Decision on CGT Loss Relief for Loan to Trading Company

Monday 26th October 2026

The CA has recently decided on whether the taxpayer was entitled to relief under s.253 TCGA92 on a loan he made to a company which had become irrecoverable, and when he had released the indebtedness in exchange for shares in the company which were of no significant value.

In T.Bunting v HMRC [2026] EWCA Civ 1331, the taxpayer had provided £3.4m of unsecured interest free loans to his wife’s company for the purposes of its trade.

The company was incorporated in 2004 and started a business dealing in sports history books and memorabilia. It enjoyed some success at first but by 2012 the company’s business was becoming unsustainable, with its stock declining in value rather than appreciating and the targeted market falling away.

In January 2013, the taxpayer entered into an agreement with the company for the capitalisation of £2.2m of his loan to it. The company issued 2.2m shares of £1 each, fully paid to the taxpayer who agreed to fully and irrevocably release and discharge the company from any and all claims or demands he had or may have against the company in respect of the £2.2m.  However, at that time the shares had no market value and the company subsequently went into members’ voluntary liquidation in March 2013.

The capitalisation of the £2.2m was undertaken in the belief that it would enable the taxpayer to claim income tax losses pursuant to s.131 ITA2007 on the basis that the shares issued to him had become of negligible value. However, the taxpayer accepted the shares had no value when issued and was not entitled to relief under s.131. He instead pursued the claim under s.253.

The taxpayer’s appeal to the FTT was allowed on the basis that the debt was unpaid when capitalised by shares, but the UT disagreed and reversed the FTT decision, holding that relief could not be claimed under s.253. TCGA92.

The taxpayer appealed to the CA on three grounds, firstly, that the UT’s interpretation of “outstanding” was erroneous and it should have concluded that “outstanding” meant “unpaid” rather than “remaining legally due”, endorsing the purposive construction of s.253(3)(a) adopted in Crosby.

Secondly, it was said that the UT was mistaken in considering that s.253(3)(b), (5) and (9) supported its construction of “outstanding” when the contrary was in fact the case.

Thirdly, it was argued that the UT was wrong to dismiss the relevance of implications as regards insolvency and guarantors.

The CA held that s.580 CA 2006 prohibits the issue of company shares at a discount to their nominal value and if shares are allotted in breach of that bar, the allottee is liable to pay the company an amount equal to the amount of the discount, with interest at the appropriate rate.

Per s.583(2) CA 2006, a share in a company is deemed paid up in cash, or allotted for cash, if the consideration received is a “cash consideration”. S.583(3) refers to the release of a liability of the company for a liquidated sum can constitute cash consideration.

However, in Gower: Principles of Modern Company Law 12th Ed, para 24.12 states that “it seems that there is no infringement of the rule forbidding issuing shares at a discount to par where the face value of the debt is taken for the purposes of paying up the new shares, even though the market value of the debt at the time of the swap is less than its face value because of the debtor’s insolvency”.

On that basis, the release of £2.2m of the company’s indebtedness to the taxpayer represented “cash consideration” for the 2.2m shares issued to him. Had there been no such release, the shares could not have been allotted without the taxpayer becoming liable to pay £2.2m.

The CA commented on the issue of timing and whether an amount was “outstanding” at the moment when it became irrecoverable rather than when the claim for relief was made. As no such contention was made in the grounds of appeal, it would not matter whether “outstanding” meant “remaining legally due” or simply “unpaid”, being the issue raised by ground 1.  The £2.2m was surely both at the time it became irrecoverable. In any case, it seems s.253(3) indicates that the focus is on the position when the claim is made.

The CA went on to opine that the construction of s.253(3) adopted in Crosby and endorsed in the FTT decision was erroneous, and UT was correct that an amount will be “outstanding” for the purposes of s.253(3)(a) only if there is a legal right to pursue it. It followed that the taxpayer was not entitled to relief under s.253.

If you would like more information on this decision, please contact Keith Rushen on 0044 (0) 207 486 2378.

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