Directors' Loan Bed-and-Breakfast Repayments After Finance Act 2025: s.464C is Gone, but the Trap Remains

If your adviser checklist still asks "have we left 31 days clear" or "is the redraw under £5,000", the questions are still the right ones, but the section number on the checklist is wrong. The section 464C thirty-day rule and the section 464D fifteen-thousand-pound arrangements rule were omitted by Finance Act 2025 with effect from 30 October 2024, and the same rules were re-enacted at section 464ZA from the same date. The thirty-day limb is now s.464ZA(1) and the fifteen-thousand-pound limb is now s.464ZA(3). The wider architecture is the section 455 charge on overdrawn DLA balances at the dividend upper rate (35.75% from 6 April 2026 onwards), the section 456 statutory exceptions, and the section 464A anti-avoidance gateway that charges tax-avoidance arrangements conferring a benefit on a participator. HMRC's concern about repay-then-redraw patterns has not gone away, and neither have the statutory tests for it.

If you built your planning around the £5,000 thirty-day bright line or the £15,000 arrangements threshold, that planning still holds, and so does the need for defensible substance behind a genuine repayment: the cash was real, the source was genuine, any redraw was for a different purpose and was not arranged at the time of the repayment. What follows is the architecture as it stands, two worked failed-repayment scenarios, and the safe-repayment patterns to use for a property SPV.

Two related questions sit just outside this one. How a DLA is created and how the s.455 gateway works in detail is in the DLA entry mechanics guide; the multi-year drawdown plan is in the DLA repayment strategy guide. This is the trap itself: what HMRC can still challenge, and what a safe repayment now looks like.

What changed on 30 October 2024

Finance Act 2025, by section 81(3)(b) and (4), omitted CTA 2010 s.464C and CTA 2010 s.464D with effect from 30 October 2024 (the date of the Autumn Budget 2024 announcement). The legislation.gov.uk pages for both sections now display "this version of this provision no longer has effect". In the same section, by section 81(3)(a) and with effect from the same date, it inserted CTA 2010 s.464ZA "Treatment of certain repayments" and s.464ZB "Section 464ZA: supplementary", which together carry the two bed-and-breakfast tests forward. This was a renumbering exercise, not a repeal of the policy. Both of the omitted sections were part of the bed-and-breakfast architecture introduced by Finance Act 2013 (the same Finance Act that inserted s.464A, which was not touched).

The practical consequence for advisers is narrow but important: every checklist, engagement note and file memo citing s.464C or s.464D as the operative test is now citing a section that has been off the statute book since 30 October 2024. The test it describes is still live. Sweep your templates for the section numbers rather than for the rule, because the rule reads the same.

What the two bed-and-breakfast limbs do

These are the rules that shaped the planning most advisers still run. Both are in force, at s.464ZA rather than at their old numbers.

The 30-day rule, now s.464ZA(1). Where a loan to a participator is repaid (or partially repaid) to the extent of £5,000 or more, and within 30 days new chargeable payments of £5,000 or more are made to the same participator or an associate of theirs in a later accounting period, the repayment is matched against those new payments instead. The original loan is left outstanding and the s.455 charge on it survives as if the repayment had not happened. The £5,000 floor excludes trivial cycles; the 30-day window is the bright-line clock. This was s.464C before 30 October 2024.

The £15,000 arrangements rule, now s.464ZA(3). Where £15,000 or more is outstanding immediately before the repayment and, at the time of the repayment, there are arrangements under which the participator (or an associate) will receive replacement borrowing of £5,000 or more, the repayment is disregarded for s.455. There is no 30-day window on this limb, so it catches larger structured patterns whatever the gap between repayment and redraw. It reaches further than the 30-day rule because it operates on arrangements and substance rather than on timing. This was s.464D before 30 October 2024.

Both rules are administered by HMRC with reference to the CTM61500 chapter and are the basis of countless adviser-checklists that ask "have we left 31 days clear" or "is the redraw under £5,000". Those checklists remain the controlling discipline; from 30 October 2024 they should cite s.464ZA(1) and s.464ZA(3). Note also that s.464ZA(7) gives the Treasury an order power over the thresholds, so pin them to the date of the transaction.

The current architecture: s.455, s.456, s.464ZA and s.464A

s.455 itself. The gateway charge is unchanged in operation. Where a close company makes a loan to a participator, an amount equal to the dividend upper rate (35.75% from 6 April 2026; 33.75% from 6 April 2022 to 5 April 2026) applied to the outstanding loan balance is due as if it were corporation tax for the accounting period in which the loan was made. The charge is payable 9 months and one day after the end of that accounting period. Where the loan is repaid before that date, no s.455 charge arises. Where it is repaid after that date, relief is available under CTA 2010 s.458 (the s.455 charge is refundable to the proportion of the loan repaid). That relief is deferred, not immediate: s.458(5) provides that where the repayment, release or write-off happens on or after the day the s.455 tax became due, relief may not be given before the end of 9 months from the end of the accounting period in which the repayment occurred. A claim must be made within 4 years of the end of the financial year of the repayment (s.458(3)).

s.456 exceptions. The statutory exceptions in CTA 2010 s.456 remain available. The principal exception for property SPVs is the small-loan exception in s.456(2) where the loan does not exceed £15,000, the borrower works full-time for the company, and the borrower does not have a material interest in the company. Material interest is defined at CTA 2010 s.457 as beneficial ownership or control of more than 5% of the ordinary share capital. Most property SPV founders are well above that, so this exception rarely applies in the property-SPV cohort.

s.464ZA, the repayment rules. CTA 2010 s.464ZA "Treatment of certain repayments" decides whether a repayment counts against the s.455 charge at all. Where either limb applies, the repayment is disregarded and the s.455 charge stands. This is the first place to look on any repay-then-redraw fact pattern; s.464A only becomes relevant where neither limb reaches. One carve-out matters in practice: s.464ZA(6) disapplies the whole section where the repayment itself gives rise to an income tax charge on the participator or associate, which is why clearing a DLA by declaring a dividend is not caught by either limb.

s.464A arrangement-benefit charge. CTA 2010 s.464A "Charge to tax: arrangements conferring benefit on participator" remains in force. It charges the company at the dividend upper rate where: (a) the close company is party to tax-avoidance arrangements, and (b) as a result of those arrangements, a benefit is conferred (directly or indirectly) on an individual who is a participator or an associate of one. The charge is computed by reference to the value of the benefit conferred. s.464A was inserted by Finance Act 2013 alongside the bed-and-breakfast sections but covers a different category of mischief: arrangement-based benefits rather than the specific repay-then-redraw cycle. It is the backstop where a pattern runs wider than the two s.464ZA limbs.

The s.464A challenge proceeds in two limbs. First, HMRC must identify the arrangement; the test is whether the dealings between the company and the participator collectively look engineered for tax avoidance rather than commercial. Second, HMRC must value the benefit; for a bed-and-breakfast pattern the benefit is typically the s.455 charge avoided. The charge then runs at 35.75% on that benefit value.

HMRC's enquiry pattern

HMRC's enquiry posture relies on four lines of attack.

Line 0: the s.464ZA limbs. The first question on any repay-then-redraw pattern is whether s.464ZA(1) or s.464ZA(3) applies. If either does, the repayment is disregarded and the s.455 charge stands without HMRC needing to prove anything about motive. This is the cheapest line for HMRC and the one to clear first on any file.

Line 1: the assignment / novation analysis. HMRC's manual at CTM61605 covers assignment and novation of debt. A repayment that is not in fact a repayment (because the debt has been assigned to a third party, or novated to another entity within the group, or simply re-papered without a real cash flow) is not a repayment for s.455 purposes. The original s.455 charge survives. Most legitimate property SPV repayments are not affected; the line bites where the paperwork hides the underlying continuity of the debt.

Line 2: s.464A characterisation. Where the pattern falls outside both s.464ZA limbs but is still structured to avoid the s.455 trigger, HMRC can argue tax-avoidance arrangements were in place. The argument runs from the documented intent (board minutes, correspondence, written planning notes) and from the timing pattern (cycle frequency, repayment-redraw correlation, source of repayment cash). The defence runs on real-cash substance and unconnected purpose for any redraw.

Line 3: the general anti-abuse posture. HMRC's general approach to close-company anti-avoidance, supported by the GAAR where appropriate, applies as a backstop. The GAAR is rarely invoked in property SPV cases (because the smaller-scale cycles do not meet the GAAR's "abusive arrangements" test), but it is in the toolkit.

Worked scenario A: clean s.455 reinstatement on a sham repayment

Property SPV with a 31 December year-end. Director draws £80,000 from the company on 1 February 2026 (a debit DLA balance of £80,000). The 9-month s.455 trigger date is 1 October 2027. On 29 September 2027 the director "repays" £80,000 by issuing a personal cheque to the company, dated 29 September. The cheque is not cleared at the bank; it is held by the company's bookkeeper pending the auditor's year-end review. On 4 October 2027 the director issues a fresh draw of £80,000 to themselves.

HMRC enquiry in 2028 reviews the bank statements. The £80,000 "repayment" never reached the company bank account; the cheque was held and then voided in October 2027 after the fresh draw cleared. The repayment was not a genuine repayment of debt; it was a paper transaction that did not change the participator's economic exposure. The original £80,000 loan was outstanding through 1 October 2027. The loan was made on 1 February 2026, before the rate change, so it is charged at 33.75%: £80,000 × 33.75% = £27,000, due for the accounting period to 31 December 2026 and payable from 1 October 2027. Had the same draw been taken on or after 6 April 2026 the charge would be £80,000 × 35.75% = £28,600.

The route here is the assignment / novation analysis, not the statute. s.464ZA(1) operates on a repayment, and on these facts there was never a repayment to disregard: no cash reached the company, so nothing was repaid and the s.455 charge simply stands. Note the order of analysis. Had the cheque cleared on 29 September 2027, the 30-day limb would then have caught the £80,000 redraw made 5 days later, in an accounting period later than the one in which the original loan was made, with both amounts well above £5,000; the statutory limb is the cheaper route for HMRC where it is available, because it needs no argument about substance. Where the purported repayment is a paper transaction, HMRC does not need s.464ZA at all.

Worked scenario B: s.464ZA(3) on a structured cycle outside the 30 days

A different director, also with a 31 December year-end. Director draws £60,000 on 1 March 2026, so the loan sits in the accounting period to 31 December 2026 and the 9-month s.455 trigger date is 1 October 2027. On 1 September 2027, one month before that trigger, the director transfers £60,000 from a personal investment account into the company (the repayment is real cash, the source is genuine). On 1 November 2027, about nine weeks after the repayment, the director draws £60,000 again for the same general purpose as the original loan (working capital across multiple property holdings). The same pattern then repeats twice more, in the years to 31 December 2027 and 31 December 2028: a real-cash repayment one month before each s.455 trigger date, a redraw of the same amount about nine weeks later.

HMRC enquiry in 2029 looks at the pattern over three cycles. The repayments are genuine cash transactions and individually do not breach the assignment / novation analysis. But the pattern, viewed as a whole, looks engineered: the timing relative to the s.455 trigger is too consistent to be coincidence, the redraws closely mirror the repayments, and the director's investment account has been used as a pass-through specifically for this purpose.

The gap between repayment and redraw is about nine weeks, so the 30-day limb at s.464ZA(1) does not apply. The £15,000 limb at s.464ZA(3) does: £60,000 was outstanding immediately before each repayment, well above the £15,000 threshold, and the consistency of the cycle supports HMRC's case that arrangements for replacement borrowing of £5,000 or more existed at the time of each repayment. There is no 30-day window on this limb, so the ten-week gap is no protection. Each repayment is matched against the replacement borrowing rather than against the advance it purported to clear, so each of the three £60,000 advances is left outstanding at its own 9-month trigger date and carries its own s.455 charge. The rate follows the date each advance was made. The first advance, on 1 March 2026, predates the rate change: £60,000 × 33.75% = £20,250. The second and third, in November 2027 and November 2028, fall after 6 April 2026: £60,000 × 35.75% = £21,450 each. Total s.455 across the three cycles is £63,150, refundable under s.458 only when a repayment that is not disregarded is eventually made, and then only from 9 months after the end of the accounting period in which that repayment falls.

Had the same pattern run before 30 October 2024 it would have been caught by s.464D on identical terms; the analysis does not change, only the citation. Where a pattern falls outside both s.464ZA limbs, for instance because less than £15,000 was outstanding and the redraw came after 30 days, HMRC can still run s.464A and charge the dividend upper rate on the value of the benefit conferred, but that route requires it to prove tax-avoidance arrangements and is materially harder to sustain.

Safe-repayment patterns for property SPVs

Five patterns are defensible post-FA-2025 if you run a property SPV and need to clear an overdrawn DLA.

Pattern 1: clean genuine cash repayment. You repay the full overdrawn balance using personal cash from a genuine source (salary from elsewhere, investment income, inheritance, sale of a personal asset). No redraw within the next 12 months. The substance is unambiguous and the s.455 charge does not arise. This is the bedrock pattern.

Pattern 2: clearing via dividend declaration. You take a dividend (declared with a contemporaneous board minute, drawn from distributable reserves, paid through the company bank account) and use the post-tax amount to clear the overdrawn DLA. The dividend is income on your Self Assessment (taxed at 10.75%, 35.75% or 39.35% by band); the DLA balance is cleared; no s.455 charge arises. It holds up where the declaration is genuine and contemporaneous, and converting debt to income this way is one of the core extraction mechanics set out in the property SPV extraction sequence guide.

Pattern 3: accepting the s.455 cost as deferred refundable. You leave the overdrawn balance outstanding past the 9-month trigger; the company pays s.455 at 35.75% (or 33.75% for pre-6-April-2026 loans). The charge is refundable when you eventually repay the loan (s.458 relief), but the refund is deferred: under s.458(5) it cannot be given before 9 months after the end of the accounting period in which the repayment falls, so the cash can sit with HMRC for close to two years after the loan is cleared. The real cost is the interest the company foregoes on the s.455 amount over that whole period. For a balance you expect to repay within 2-3 years, this can be the cleanest route.

Pattern 4: write-off as participator benefit (taxable in your hands). The company formally writes off the overdrawn balance; the released amount is charged to income tax on you as the participator under ITTOIA 2005 s.415 and is taxed at dividend rates. The DLA is cleared and the company can reclaim the s.455 charge under s.458, subject to the same 9-month deferral. This is less common, but it is sometimes the right answer for a very long-standing balance you cannot realistically repay.

Pattern 5: deliberate non-cycling repayment with documented purpose. Where you repay because you have surplus personal cash and have no immediate intent to redraw, the repayment is straightforward. If a later redraw becomes necessary (a property purchase, a refurbishment, a different commercial purpose), establish that different purpose at the time of the redraw, not retrospectively. A board minute or written file note dated at the redraw, recording why, is the discipline that protects you.

Interaction with the extraction sequence

If you are working through a multi-year extraction plan, the renumbering changes nothing in the plan itself. Repay your DLA out of genuine personal cash, leave clear air of more than 30 days before any redraw, and redraw only for genuine new commercial purposes decided after the repayment rather than arranged before it. The rules behave exactly as they did under ss.464C and 464D.

What does need attention is the paperwork. Any planning note, letter of advice or internal checklist citing s.464C or s.464D is citing an omitted section, and a reader who checks the citation will find a page saying the provision no longer has effect. Refresh the references to s.464ZA(1) and s.464ZA(3) and the advice underneath them stands.

Two things in older guidance you can no longer trust

Much of the writing on directors' loan bed-and-breakfasting predates these changes, so two specific claims you will still find in circulation are wrong.

Anything citing s.464C or s.464D as the operative sections. Those sections were omitted on 30 October 2024, so the citation is dead even though the rule is not. Read them across to s.464ZA(1) and s.464ZA(3). Be equally wary of the opposite error, which is now the more common one: commentary that noticed the omission but missed the insertion of s.464ZA in the same subsection of FA 2025, and concluded that the bed-and-breakfast tests have been abolished and only s.464A remains. They have not been abolished.

Anything quoting the s.455 rate as a flat 33.75%. The rate tracks the dividend upper rate in ITA 2007 s.8(2), which was substituted by Finance Act 2026 s.4(1)(b) from 6 April 2026, so it is 35.75% for the tax year 2026/27 onwards. For a loan made on or after 6 April 2026, 33.75% is stale; for a loan made before that date, 33.75% is still right (it falls in the pre-substitution period). The lesson is to pin any s.455 rate to the tax year of the loan, not to quote a single percentage.

Where this fits in your extraction plan

This trap rarely sits on its own. For the wider sequence of how you take money out of a property company, see the property SPV extraction sequence guide; for the multi-year DLA drawdown plan, the DLA repayment strategy guide; for how the balance is created in the first place through s.162 incorporation or undrawn dividends, the DLA mechanics guide; and for the corporation-tax context (small-profits rate, marginal relief, CIHC) that drives the real cost of any s.455 charge, the corporation tax marginal relief guide.

The bottom line is simple. The post-FA-2025 framework is forgiving of genuine cash repayments from genuine personal resources and unforgiving of structured cycles, whatever threshold they used to fit under. Substance was always the better defence; with the bright lines gone, it is now the only one. If you are clearing an overdrawn DLA, planning a redraw, or worried that a pattern you ran under the old rules could be reopened, it is worth having someone test the facts before HMRC does. You can use the form below to talk a specific situation through.