Bunting v Revenue and Customs Commissioners

19 March 2025. JOANNA SMITH J and UPPER TRIBUNAL JUDGE ALEKSANDER gave the following judgment of the Upper Tribunal.

1 This appeal concerns the interpretation of section 253(3) of the Taxation of Chargeable Gains Act 1992 (“TCGA 1992”). In summary, section 253(3) provides that a taxpayer who has made a loan to a trader may claim an allowable loss if the outstanding principal of the loan has become irrecoverable, and certain other requirements have been met.

2 The short issue in this appeal is whether a claim can be made under section 253(3) in circumstances where a loan was released in consideration for the issue of ordinary shares prior to the claim being made.

3 References in this decision to sections, are to sections in the TCGA 1992, unless stated otherwise.

4 Mr Bunting was represented by Mr Chacko, and HMRC were represented by Mr Windle. Although greatly assisted by their detailed and helpful submissions, both written and oral, we have not found it necessary to refer to each and every argument advanced or all of the authorities cited in reaching our decision.

5 The facts in this appeal were not in dispute. The FTT made factual findings with reference to the available evidence in para 7 of its decision Bunting v Revenue and Customs Comrs [2024] UKFTT 275 (TC) (“the Decision”), which we summarise by reference to the key facts as follows:

(1) In the early 2000s, Mr Bunting wanted to establish a business dealing in sports history books and memorabilia. It was intended that the business would trade with a view to a profit, and its holding of stock was expected to appreciate in value (para 7(3)).

(2) On 7 July 2004 Rectory Sports Ltd (“the Company”) was incorporated. Mr Bunting’s wife was appointed as the sole shareholder and director. The company was capitalised by one ordinary share of nominal value £1 fully paid (para 7(4)).

(3) The activities of the business were funded by Mr Bunting who personally invested £3,452,771 by way of a series of unsecured1^F2, non-interest-bearing loans (“the Loan”) (para 7(5)).

(4) The Loan represented money lent to the Company which was used by it wholly for the purposes of its trade in books and memorabilia and was not a debt on security (para 7(6)).

(5) There was some initial success for the business but by 2012 it had become clear to Mr Bunting (and his wife) that the stock held was depreciating rather than appreciating in value and the targeted market was falling away. The business was becoming unsustainable (para 7(7)).

(6) On 31 January 2013 Mr Bunting and the Company entered into an agreement for the capitalisation of £2.2m of the Loan (“the Capitalisation Agreement”). Pursuant to that agreement the Company issued 2,200,000 ordinary £1 shares to Mr Bunting (“the Consideration Shares”), and in consideration he agreed to “fully and irrevocably release and discharge the Company from any and all claims or demands [he] [had] or may have against the Company and duties, obligations and liabilities that the Company [had] or may have to [him] under or in respect of [£2.2m]” (para 7(8)).

(7) The Capitalisation Agreement does not represent an assignment of the capitalised proportion of the Loan (para 7(9)).

(8) On 31 January 2013 the Company, and therefore the Consideration Shares, had no value (para 7(10)).

(9) The capitalisation of £2.2m of the Loan was undertaken for the purposes of, and in the belief that, Mr Bunting would, in consequence of the conversion, be entitled to claim income tax losses pursuant to section 131 Income Tax Act 2007 on the basis that the shares had become of negligible value (para 7(11)).

(10) On 18 March 2013, the Company and Mr Bunting entered a further agreement for the release and discharge of £1,325,771 of the Loan in consideration for the transfer to Mr Bunting of identified assets (including the Company’s name, fixed and moveable assets and stock) (para 7(12)).

(11) On 28 March 2013 the Company resolved that it should be liquidated, and liquidators were appointed2 (para 7(13)).

(12) Mr Bunting claimed £2.2m of income losses in his self-assessment tax return for the tax year ended 5 April 2013 (para 7(14)).

(13) On 27 January 2015 HMRC...