Last updated: 14 October 2026
Can you get tax relief for repaying your trading company’s overdraft?
Possibly, as a capital loss rather than an income tax deduction. If you personally guaranteed your company’s overdraft and the bank calls on the guarantee after the company fails, you can usually claim a capital loss under the “loans to traders” rules, as long as the company was a UK trading company and the money can’t be recovered from it. That loss can be set against capital gains in the same or later years. It can’t normally be set against your salary or other income.
How the relief works
| Situation | Relief available |
| You pay the bank under a personal guarantee of a trading company’s borrowing | Capital loss (loans to traders relief) |
| You lent money directly to the company and it can’t repay | Capital loss, if the loan was used for the trade |
| You borrowed personally to lend to or invest in a close trading company | Income tax relief on interest (qualifying loan interest), subject to the annual cap |
| You subscribed for shares that become worthless | Capital loss, possibly share loss relief against income |
Conditions for loans to traders relief
- The borrower was UK resident and used the money wholly for its trade
- The loan or guaranteed amount has become irrecoverable
- You haven’t assigned your right to recover the money
- A claim is made within 4 years of the end of the tax year in which the guarantee payment was made
Example
Adele guaranteed her café company’s £40,000 overdraft. The company went into liquidation in 2026, and she paid the bank £40,000. The liquidator confirms creditors won’t be paid. Adele claims a £40,000 capital loss for 2026/27. She sells a buy-to-let flat in 2027 with a £50,000 gain, so the loss reduces her taxable gain to £10,000 before her annual exemption.
If you recover money later
If you recover any of the money, for example from the liquidator, it’s treated as a capital gain in the year you receive it, up to the loss already claimed.
Qualifying loan interest
If you take out a personal loan to lend money to your close trading company, interest on that loan can be deducted from your total income. This relief, along with others, is capped at £50,000 or 25% of your adjusted total income, whichever is higher.
Before paying under a guarantee
- Check the terms of the guarantee with a solicitor
- Get confirmation from the liquidator or administrator of the expected return to creditors
- Keep the bank’s demand, payment evidence and company insolvency documents
Common mistakes
- Assuming a guarantee payment can be set against salary
- Missing the 4-year deadline for the claim
- Claiming before the debt is genuinely irrecoverable
- Forgetting that the company must have used the money for its trade, not for investments
Frequently asked questions
Can I set the loss against my salary?
No, only against capital gains.
Does it matter if the company was dissolved?
No, if the debt is irrecoverable.
What if the company was an investment company?
Relief isn’t available; it must be a trading company.
Can I carry the loss forward?
Yes, capital losses carry forward indefinitely once claimed.
Related: directors’ liability for a dissolved company, offsetting share losses and when your spouse resigns as a director.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with director guarantees and tax relief. 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 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
