Last updated: 16 October 2026
The question
My brother and sister-in-law each lent my company £10,000 some years ago. The company still trades but is unlikely to ever repay. If I write the loans off in the company accounts, can my relatives claim tax relief?
Loans to traders relief
Individuals who lend money to a trader can sometimes claim a capital loss when the loan becomes irrecoverable. This is “loans to traders” relief under section 253 of the Taxation of Chargeable Gains Act 1992. The loss can be set against capital gains in the same or later years. It cannot be set against income.
Conditions
| Condition | What it means |
| Borrower is UK resident | The company must be resident in the UK |
| Money used in a trade | The loan was used wholly for the borrower’s trade, not as an investment |
| Loan is not a security | Ordinary loans qualify; loan notes or bonds usually do not |
| Loan has become irrecoverable | There is no realistic prospect of repayment |
| Not caused by the lender | The lender has not made it irrecoverable by their own act, such as voluntarily releasing it |
| Parties are not spouses or group companies | Loans between spouses or civil partners do not qualify |
Why you should not simply “write off” the loans
If your relatives formally release or waive the loans, HMRC may argue that the loss arose from their own act, so relief is denied. The better approach is for them to make a claim that the loans have become irrecoverable, supported by evidence such as the company’s accounts and cash flow, while the debt technically remains outstanding. Writing the loan off in the company’s accounts can also create a taxable credit for the company in some circumstances, so take advice first.
Time limit
Under section 253, the loss normally arises when the claim is made. The lender can instead choose an earlier time, as long as the loan was already irrecoverable then and that time is no more than two years before the start of the tax year in which the claim is made (HMRC Capital Gains Manual CG65941). For example, a claim made in 2026/27 can treat the loss as arising as early as 6 April 2024. Delaying a claim can therefore mean losing the chance to use the loss against gains of earlier years.
Example
Your brother has a £20,000 capital gain on shares in 2026/27. He claims a £10,000 loss on his irrecoverable loan to your company. His taxable gain falls to £10,000, and after his £3,000 annual exempt amount he pays CGT on £7,000. At 24%, this saves him £2,400.
If the company later repays
If the company recovers and repays any of the loan after the relief has been claimed, the amount repaid is treated as a capital gain for the lender in the year of repayment.
Alternatives
- Convert the loans into shares. If the company later fails, share loss relief may give relief against income in some cases.
- Keep the loans in place and wait to see whether the company recovers.
Frequently asked questions
Can the relatives claim the loss against their salary?
No. Loans to traders relief only gives a capital loss.
Does interest that was never paid qualify?
No. Only the capital lent qualifies.
What if the company is struck off?
The loan is then clearly irrecoverable, but check the timing of the claim.
Can directors claim for their own loans?
Yes, under the same rules.
Related: lending to a friend or buying shares, writing off a director’s loan and losses on shares.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with loans, losses and company finance. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
