Capital Loss Relief on Irrecoverable Director’s Loans: A Guide for Company Owners
- LHP Accountants
- Jun 17
- 2 min read
When a director lends money to their own company, it is usually with confidence in the business’s future. But if things take a turn and the loan becomes irrecoverable, all may not be lost from a tax perspective. HMRC allows for potential capital loss relief on such loans, offering a silver lining for directors facing financial disappointment.

What Is Capital Loss Relief?
Capital loss relief enables you to offset the loss of a loan made to a business against capital gains in the same or future tax years. This can reduce your overall Capital Gains Tax (CGT) liability. The rules for this are set out in HMRC’s Capital Gains Manual at CG65950, and further guidance is provided in Help sheet HS296.
To qualify for relief under Section 253 of the Taxation of Chargeable Gains Act 1992, the following key conditions must be met:
· The loan must have been a genuine loan, and the monies used for trade purposes.
· The company must have been a trading company at the time the loan was made.
· The loan must have been made for commercial purposes, and not as part of a tax planning arrangement.
· The loan must be unsecured, and it must now be wholly irrecoverable.
Director-Specific Considerations
While directors often inject personal funds into their businesses, HMRC may apply extra scrutiny to these loans, particularly if the director is also a shareholder. It is important to ensure the loan was not disguised capital or a share investment.
As highlighted in HMRC’s community forum discussions, it is not enough to simply state that a loan is irrecoverable. You will need to provide evidence, such as insolvency reports, liquidator correspondence, or documentation showing that repayment is no longer possible.
How to Make a Claim
You can usually make a claim through your Self-Assessment tax return. It is important to clearly explain the nature of the loan, include appropriate documentation, and refer to HMRC’s published guidance. Help sheet HS296 is a useful reference when completing your return.
In Summary
Although writing off a director’s loan is never an easy decision, understanding how to claim capital loss relief can help reduce the financial impact. If you believe you may be eligible, it is worth speaking to an accountant to ensure your claim is valid and properly documented.
More questions?
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