Satisfaction of a debt does not constitute recovery

The taxpayer had a career in banking and as an investor. In July 2004 he incorporated a company to trade in sports history books and memorabilia. His wife was the company’s sole shareholder and director because his employer did not permit external directorships. The taxpayer funded the company’s activities by way of £3.45m in unsecuritised non-interest bearing loans.

Although the company initially had some success by 2012 it had become unsustainable. In January 2013 the company and the taxpayer entered into an agreement for the capitalisation of the loan. The company issued 2 200 000 ordinary £1 shares to the taxpayer and the taxpayer agreed to ‘fully and irrevocably release and discharge any claims or demands’ he may have against the company. This was done so the taxpayer could claim income tax losses under ITA 2007 s 131 on the basis that the shares had...