My brother and sister in law each lent my company £10,000 some years ago. The company is still trading, but it is unlikely to ever be able to repay those loans. If I write off the debt in the company accounts will my relatives be able to claim tax relief for the irrecoverable loans?
Lenders in this position can sometimes treat the irrecoverable loan as a capital loss, which can be set against capital gains, but not against income. However, the Taxman will only grant this tax relief if the loan really is irrecoverable. This is taken as read where the business has gone broke. While the company is still trading there is a possibility that the money could be repaid, even if the amounts have been written off in the company accounts. The Taxman will need some considerable evidence from the company’s bankers and other sources, such as Court judgments, to be convinced that the loans cannot be repaid by a trading company.