SolvedCG66032 | Losses: loans to traders: payments under guarantee
From HM Revenue & Customs · Capital Gains Manual
In order to decide what amount of relief is available to a claimant under TCGA92/S253 (4) you will need, therefore, to consider the ability of the co-guarantors, if any, to meet their shares of any payment to the lender under the guarantee. The position of the co- guarantors is to be considered at the date on which the claimant makes payment of any amount over and above his or her strict pro-rata share under the guarantee on which relief is being claimed. In accordance with the Leisureking judgement, the criteria to be adopted in relation to recoverability of contributions from co-guarantors are the same as in relation to recoverability of loans from the borrower by the lender, see CG65950 - CG65957.
Example
A Ltd, B Ltd, C Ltd and D Ltd have jointly and severally guaranteed a bank loan to E Ltd of £100,000.
E Ltd goes into liquidation and it is accepted that the loan has become irrecoverable from E Ltd.
On 1 October 1993 A Ltd pays £100,000 to the bank under the terms of the guarantee.
As at 1 October 1993: B Ltd is in a position to meet fully its liability under the guarantee
C Ltd's position is such that only £10,000 is recoverable from it
D Ltd is insolvent and about to go into liquidation with no prospect of meeting any liability under the guarantee.
The relief due to A would be:
| - | - | £ | £ |
|---|---|---|---|
| - | Total paid | - | 100,000 |
| Less | agreed payable by C Ltd | 10,000 | - |
| - | D Ltd | Nil | 10,000 |
| - | Amount to be divided between co-guarantors able to meet their contributions in full | - | 90,000 |
| Less | payable by B Ltd | - | 45,000 |
| - | Relief due to A Ltd as at 1 October 1993 | - | 45,000 |