Background
Timothy Bunting lent approximately £3.45 million to a company established to trade in sports-history books and memorabilia. By 2012, the business had become unsustainable. In January 2013, Bunting agreed to release £2.2 million of the company’s debt in exchange for 2.2 million fully paid £1 shares. The company and the newly issued shares had no market value, and the company entered members’ voluntary liquidation in March 2013.
After accepting that he could not claim income-tax relief on the shares, Bunting sought an allowable capital loss under section 253 of the Taxation of Chargeable Gains Act 1992. HMRC refused the claim. The First-tier Tribunal allowed his appeal, reasoning that the loan amount remained unpaid and irrecoverable despite its formal release. The Upper Tribunal reversed, holding that an amount is “outstanding” under section 253(3)(a) only while a legal entitlement to recover it continues.
The Court’s Holding
The Court of Appeal unanimously dismissed Bunting’s appeal. It held that an “outstanding amount” under section 253(3)(a) means an amount that remains legally due, not merely money that the lender has never received. Because Bunting irrevocably released the company from £2.2 million of indebtedness in exchange for the shares, that portion of the loan had been extinguished and was no longer outstanding when he made his claim.
The shares’ negligible market value did not alter that conclusion. The release constituted consideration enabling the shares to be issued as fully paid, and Bunting no longer had a legal right to pursue the discharged debt. The Court rejected the broader interpretation adopted in Crosby v Broadhurst and by the First-tier Tribunal, while leaving unresolved the precise operation of the statutory clawback provisions where money’s worth is received after relief has already been claimed.
Key Takeaways
- Section 253 loan-loss relief requires an irrecoverable amount that remains legally due when the claim is made.
- A lender cannot treat a debt as “outstanding” after irrevocably releasing it, even if the lender received worthless shares and no cash.
- The Court rejected the view that section 253 protects every qualifying lender who economically fails to recover the money advanced.
Why It Matters
The decision makes the legal status of the debt—not merely the lender’s economic loss—decisive under section 253. Creditors considering a waiver, release, debt-for-equity exchange, or other restructuring must therefore assess and, where appropriate, claim loan-loss relief before extinguishing their legal right to repayment.
The judgment also disapproves Crosby’s interpretation that a released loan could remain eligible merely because it was unpaid and irrecoverable, narrowing the circumstances in which lenders may claim capital-loss relief following a debt restructuring.