Income Tax (Trading and Other Income) Act 2005 section 419

Loans and advances to persons who die

Section 419 deals with what happens for income tax purposes when a company releases or writes off a loan that was originally made to a person who has since died, and the company was subject to a tax charge on that loan under the close company rules.

• The section applies where a loan or advance was made to a person who has died, the lending company was or is liable to tax under the close company participator loan rules, and the company releases or writes off all or part of the debt after the borrower's death
• If the debt is owed by the deceased's personal representatives acting in that capacity at the time of release or write-off, no direct income tax charge arises on them — instead, the amount is treated as part of the aggregate income of the estate for the purposes of taxing estate income
• If the debt has passed to someone other than the personal representatives (for example, a beneficiary who has assumed the liability), the income tax charge falls on whichever person owes the debt at the point the company releases or writes it off
• The effect is that the tax charge does not simply disappear on the borrower's death — it is either picked up through the estate income rules or charged directly on whoever holds the debt when it is forgiven