Court of Appeal Clarifies £2.2m Loan Tax Relief Rules in Bunting v HMRC

What did the Court of Appeal decide?

In Timothy Bunting v The Commissioners for His Majesty’s Revenue and Customs [2026] EWCA Civ 1331, handed down on 16 October 2026, Lord Justice Newey, with Lord Justice Phillips and Lord Justice Miles agreeing, dismissed Mr Bunting’s appeal.

The issue was whether Mr Bunting could claim relief under section 253 of the Taxation of Chargeable Gains Act 1992 (TCGA) for £2.2 million he had lent to a trading company and later released in exchange for shares. Section 253 allows qualifying lenders to be treated as having an allowable capital loss where an outstanding amount of loan principal has become irrecoverable, subject to statutory conditions.

The court agreed with the Upper Tribunal that the amount must remain legally due at the time the relief claim is made. Because the debt had been released as part of the share issue, that portion of the loan was no longer outstanding for the purpose of the provision.

How did the loan become shares?

Mr Bunting funded a company incorporated as Rectory Sports Limited, which traded for much of its life as Sportspages UK Limited. By the end of 2010, he had lent it £3,452,771 through unsecured, interest-free loans used for the business.

As the company’s business deteriorated, two transactions took place in 2013. The company transferred certain assets to Mr Bunting in return for the release of £1,325,771 of indebtedness. Separately, under an agreement dated 31 January 2013, Mr Bunting agreed to release a further £2.2 million of debt in exchange for the issue of 2.2 million fully paid shares of £1 each.

The shares had no significant market value when issued, and the company entered members’ voluntary liquidation on 28 March 2013. Mr Bunting initially considered income tax relief on the basis that the shares had become of negligible value, but accepted that they had no value at the point of issue and therefore had not subsequently “become” negligible in value. He then pursued relief under section 253 of the TCGA.

1. 2004 The company is incorporated to trade in sports history books and memorabilia.
2. By the end of 2010 Mr Bunting’s unsecured, interest-free loans total £3,452,771.
3. 31 January 2013 £2.2 million of the loan is released in exchange for 2.2 million shares.
4. 28 March 2013 The company enters members’ voluntary liquidation.
5. 16 October 2026 The Court of Appeal dismisses Mr Bunting’s appeal.

What does “outstanding” mean under section 253?

The central question was whether an “outstanding amount” means money that has not in fact been recovered, or an amount that remains legally payable by the borrower. Mr Bunting argued for the former interpretation, submitting that the provision was intended to help lenders who would never see the money again.

Lord Justice Newey considered that the wording naturally points to a continuing legal liability. A debt described as outstanding ordinarily remains due and has not been discharged or released. If a lender has released the debt, it is difficult to say that the same amount remains outstanding, even if the lender received shares that were economically worthless.

The judgment also referred to other parts of section 253. These provisions address the claimant’s right to recover the amount and the treatment of later recoveries of money or money’s worth. In the court’s view, that context supported the conclusion that an outstanding amount must be legally recoverable in principle, even if it has become irrecoverable in practice.

For section 253 relief, an amount is “outstanding” only where there remains a legal right to pursue it.

The court acknowledged that this interpretation could produce difficult outcomes in some insolvency situations, for example where a company is dissolved before a claim is made. It nevertheless concluded that such possible consequences did not outweigh the statutory language and context.

Why was the earlier Crosby approach not followed?

Mr Bunting relied on Crosby v Broadhurst, a decision in which the Special Commissioners had accepted a claim for relief after trustees waived loans to a financially distressed company. That decision treated the statutory purpose as providing relief to lenders who would not receive the money back and considered that the legislation did not expressly require the loan to remain subsisting.

The First-tier Tribunal adopted a similar approach in Mr Bunting’s case, reasoning that the debt had not been paid in any meaningful economic sense because the shares received in exchange had no significant value. The Upper Tribunal disagreed, holding that the released amount was no longer outstanding because there was no continuing obligation to pay it and no right to pursue it.

The Court of Appeal upheld the Upper Tribunal’s interpretation. Lord Justice Newey concluded that the construction in Crosby, later endorsed by the First-tier Tribunal, was erroneous. The statutory condition is not satisfied merely because the lender has not recovered equivalent economic value; the relevant amount must still be legally due when the claim is made.

What does the judgment mean for lenders?

The decision is relevant to lenders considering capital loss relief on loans made to trading businesses. It shows that the legal steps taken to restructure, release or capitalise a debt can affect whether the statutory conditions for relief remain satisfied.

Where a creditor converts debt into shares or agrees to release a liability, the value of the consideration received may not be decisive for the “outstanding amount” question. A share issue may extinguish the lender’s legal claim to the released debt even if the shares themselves have negligible or no market value.

Lenders and their advisers should therefore assess the legal effect and timing of any debt capitalisation, waiver or restructuring alongside the borrower’s financial position. The judgment does not determine every possible issue arising under section 253, including all questions about guarantors or insolvency procedures, which may depend on the facts of a future case.