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.
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Losses on Mini-Bond / Loan Note Loans or Investments Eligible for Tax Loss Relief?
Re: Losses on Mini-Bond / Loan Note Loans or Investments Eligible for Tax Loss Relief?
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 borower 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.
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 borower 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.
Re: Losses on Mini-Bond / Loan Note Loans or Investments Eligible for Tax Loss Relief?
Thank you 'eisman'. That's very helpful of you.
The point (iii) you make is critical, as you point out, and means my defaulted loans wouldn't qualify.
It's a pity they don't qualify for any tax relief whatsoever. I've lost quite a bit of money on them.
Peer to Peer lending does qualify for tax relief (on income from other P2P investments).
P2P loans often have a similar risk profile to mini-bonds/loan notes, so this makes P2P loans significantly more advantageous to lend to.
If anybody has any insights on tax relief available on mini-bonds/loan notes I'd be interested to hear your thoughts.
The point (iii) you make is critical, as you point out, and means my defaulted loans wouldn't qualify.
It's a pity they don't qualify for any tax relief whatsoever. I've lost quite a bit of money on them.
Peer to Peer lending does qualify for tax relief (on income from other P2P investments).
P2P loans often have a similar risk profile to mini-bonds/loan notes, so this makes P2P loans significantly more advantageous to lend to.
If anybody has any insights on tax relief available on mini-bonds/loan notes I'd be interested to hear your thoughts.
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