Losses on Mini-Bond / Loan Note Loans or Investments Eligible for Tax Loss Relief?

[Bizman]

I've looked far and wide but can't find any specific information on the following: if you lend money via a mini-bond or loan note (typically into a smaller UK company) and they don't give you your money back (such as the well-known London Capital & Finance scenario and, more recently, Basset & Gold), are you allowed to offset that money against either income tax or CGT?

If so, it would be a game-changer and make such loans/investments significantly less risky if you are a tax payer.

Or is there no opportunity to offset against other taxes, as you can do with losses on some other types of investment?

Thanks.

[pawncob]

Assuming it's a qualifying loan you'll get full CGT relief.
See:https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65930p

[Bizman]

Thank you pawncob, that's helpful.

I've enquired about this point and here's the information I've received:

"If a loss is incurred on a qualifying loan made to a trader (including a trading company), tax relief may be available under section 253 Taxation of Chargeable Gains Act 1992. Where relief is available, the loss is a 'capital' loss that can only be used against capital gains.

There are a number of conditions that must be met for the relief to apply, including (inter alia):
(i) the loan must have been used by the borrower wholly for trading purposes;
(ii) the borrower must be UK resident;
(iii) the borrower's debt must not be a 'debt on a security'.

A loan note (and I believe also a loan made via a mini bond) would constitute a debt on a security, so is unlikely to qualify."

I have lost a lot of money on loan notes/mini bond loans. As regards point (iii) above, the loan notes/mini bond loans I made had a security (e.g. UK commercial or residential properties) to protect the loans. Therefore, does that mean there isn't any way for me to qualify for any tax relief whatsoever for the capital and/or interest losses on my loans?

Thanks.

[Bizman]

I suppose it depends on what exactly is meant by 'debt on a security'?

[bd6759]

The loan note is an asset that has either been extinguished or become of negligible value. That is a capital loss that can be set against fire gains. You must claim the loss by telling HMRC that you have incurred it. If you don’t claim it, you lose it.

The loss cannot be set against against income tax.

[Bizman]

The loan note is an asset that has either been extinguished or become of negligible value. That is a capital loss that can be set against fire gains. You must claim the loss by telling HMRC that you have incurred it. If you don’t claim it, you lose it.

The loss cannot be set against against income tax.

Thanks. That's useful.

"That is a capital loss that can be set against fire gains." - could you clarify what that means please? What can I offset the capital loss against (you mentioned it can't be income tax, which I now understand)?

[bd6759]

Sorry. I can't type very well and autocorrect can make that worse. I meant future gains.