The Commissioners for HMRC v Timothy Bunting

For relief under section 253(3) of the Taxation of Chargeable Gains Act 1992, an amount is outstanding only if the lender retains a subsisting right to enforce repayment. A loan may be outstanding and irrecoverable at the same time, but a voluntary release or discharge extinguishes the debt and prevents it from being outstanding.

Capitalising a loan in consideration for fully paid shares satisfies the released debt. The market value of the shares, including where it is negligible, does not alter that conclusion. A purposive construction must remain anchored in the statutory language and its context.

Mr Bunting made unsecured, non-interest-bearing loans to a company trading in sports history books and memorabilia. On 31 January 2013 he released £2.2 million of the loan in consideration for 2.2 million ordinary shares. The shares had no value at that date.

After an unsuccessful income-tax loss claim, Mr Bunting made a protective claim for capital loss relief under section 253(3) of the Taxation of Chargeable Gains Act 1992. HMRC rejected it by a closure notice. The First-tier Tribunal allowed his appeal, following Crosby and others (Trustees) v Broadhurst (Inspector of Taxes) [2004] STC (SCD) 348, on the basis that the debt remained outstanding because the shares were worthless.

HMRC appealed. The central issue was whether the released part of the loan was an outstanding amount which had become irrecoverable when the statutory claim was made.

1. Appeal allowed. The First-tier Tribunal erred in holding that the released £2.2 million remained outstanding. Its decision was set aside and Mr Bunting’s appeal against HMRC’s closure notice was dismissed.

2. Section 253(3)(a) requires an outstanding amount of principal which has become irrecoverable at the time of the claim. Construed purposively but by reference to its ordinary language and statutory context, outstanding means that an obligation to pay, and a corresponding enforceable entitlement to pursue the debt, continues to exist. Irrecoverable does not alter that meaning. A loan can be both outstanding and irrecoverable where the right remains but repayment is impossible.

3. The words in section 253(3)(b), requiring that the claimant has not assigned the right to recover “that amount”, confirm that the outstanding amount is one in respect of which a right to recover subsists. Sections 253(5) and 253(9) are consistent with that construction.

4. The capitalisation agreement released and discharged the relevant part of the loan in consideration for the issue of fully paid shares. That was a satisfaction and disposal of that part of the debt for section 251(2). Under section 583 of the Companies Act 2006, release of the liquidated debt was required for the shares to be fully paid. Their negligible market value was irrelevant.

5. The Tribunal disapproved the reasoning in Crosby and others (Trustees) v Broadhurst (Inspector of Taxes) [2004] STC (SCD) 348 insofar as it treated an extinguished loan as capable of being outstanding merely because it was unpaid. A purposive construction cannot disregard the words Parliament enacted.

6. The Tribunal made no findings on the effect of particular statutory insolvency procedures, observing that a right to prove in an insolvency might still concern an outstanding loan and that section 253(3A) may permit an earlier time to be specified in an appropriate claim.

• Upper Tribunal (Tax and Chancery Chamber): Allowed HMRC’s appeal in [2025] UKUT 96 (TCC), set aside the First-tier Tribunal’s decision, and remade it by dismissing Mr Bunting’s appeal against the closure notice.
• First-tier Tribunal: Allowed Mr Bunting’s appeal against HMRC’s refusal of relief under section 253(3) of the Taxation of Chargeable Gains Act 1992.