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", you are working from a rule that no longer exists. The section 464C thirty-day rule and the section 464D fifteen-thousand-pound anti-arrangement rule were omitted in full by Finance Act 2025 with effect from 30 October 2024. CTA 2010 Part 10 Chapter 3B no longer has effect in the form pre-2025 guidance describes. What survives 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 residual section 464A anti-avoidance gateway that charges tax-avoidance arrangements conferring a benefit on a participator. HMRC's underlying concern about repay-then-redraw patterns has not gone away. The toolkit for challenging those patterns has changed, and so has the way you defend yourself.

If you built your planning around the £5,000 thirty-day bright line or the £15,000 anti-arrangement threshold, the live question now is what defensible substance sits behind a genuine repayment. The bright lines are gone; substance-based defences (the cash was real, the source was genuine, any redraw was for a different purpose) are what you rely on instead. 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 the whole of Chapter 3B of Part 10 of the Corporation Tax Act 2010. The omission has effect from 30 October 2024 (the date of the Autumn Budget 2024 announcement). The legislation.gov.uk pages for CTA 2010 s.464C and CTA 2010 s.464D now display "this version of this provision no longer has effect", confirming the omission. Both sections were part of the bed-and-breakfast anti-avoidance architecture introduced by Finance Act 2013 (the same Finance Act that inserted the surviving s.464A). The omission reverses that part of the 2013 reform.

The omission was not preceded by a public consultation on the underlying policy; the explanatory notes to FA 2025 frame the change as a tidy-up of provisions that were difficult to administer and were displaced in practice by other anti-avoidance routes. HMRC's published view (in the CTM61500 chapter generally, and in TaxAgents updates released since the Autumn Budget 2024) is that the omission does not signal a relaxation of the underlying concern about repay-then-redraw arrangements; it signals a change of toolkit.

What s.464C and s.464D used to do

It helps to know what you are no longer protected by, because these old rules shaped the planning many advisers still run. Neither is in force.

The s.464C 30-day rule. Where a loan to a participator was repaid (or partially repaid) and a new loan was made to the same participator within 30 days, and at least £5,000 of the new loan reproduced the repaid amount, the repayment was disregarded for s.455 purposes. The effect was that the original s.455 charge survived as if the repayment had not happened. The £5,000 floor excluded trivial cycles; the 30-day window was the bright-line clock.

The s.464D £15,000 anti-arrangement rule. Where the total of the repaid loans and the new loans exceeded £15,000 and the arrangements were such that the repayment was made with the intention of the new loan being made, the repayment was disregarded for s.455. The £15,000 threshold caught larger structured patterns regardless of the 30-day clock. The anti-arrangement test reached further than the 30-day rule because it operated on intention and substance rather than just timing.

Both rules were administered by HMRC with reference to the CTM61500 chapter and were the basis of countless adviser-checklists that asked "have we left 31 days clear" or "is the redraw under £5,000". From 30 October 2024 those checklists are no longer the controlling discipline.

What survives: s.455, s.456, and the residual 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).

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. Most property SPV founders have a material interest (5% or more), so this exception rarely applies in the property-SPV cohort.

s.464A residual anti-avoidance. 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 ss.464C and 464D but covered a different category of mischief: arrangement-based benefits rather than the specific repay-then-redraw cycle. With ss.464C and 464D omitted, s.464A is now the principal residual mechanism HMRC can use to challenge an artificial bed-and-breakfast pattern.

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 post-FA-2025

Without the s.464C / s.464D statutory hooks, HMRC's enquiry posture relies on three lines of attack.

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 bed-and-breakfast pattern is 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 s.455 charge of £80,000 × 35.75% = £28,600 is due for the accounting period to 31 December 2026, payable from 1 October 2027.

In this scenario the s.464C 30-day rule (now omitted) would historically have caught the £80,000 redraw within 5 days of the "repayment". Post-FA-2025 the same result is reached through the assignment / novation analysis: the "repayment" was not in fact a repayment, so no relief from s.455 is available. The substance-based route reaches the same place as the omitted bright-line rule, on these facts.

Worked scenario B: s.464A characterisation of a structured cycle

A different director, also with a 31 December year-end. Director draws £60,000 on 1 March 2026. On 1 September 2027, two months before the 9-month s.455 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, ten weeks after the repayment, the director draws £55,000 for the same general purpose as the original loan (working capital across multiple property holdings). Across the next three years the same pattern repeats: a real-cash repayment two months before the s.455 trigger, a redraw ten 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.

HMRC characterises the cycles as tax-avoidance arrangements conferring a benefit on the participator under s.464A. The benefit is the s.455 charge that would otherwise have applied in each of the three years: 3 × £60,000 × 33.75% (years 1-2 at the pre-6-April-2026 rate) and 35.75% (year 3 onwards) = approximately £62,000 of s.455 charge avoided across the three years. s.464A applies the dividend upper rate (35.75% in the year of the s.464A enquiry) to that benefit value of £62,000, producing a s.464A charge of approximately £22,000 on the company.

In the pre-FA-2025 world the same cycles would have been caught (less cleanly) by the s.464D £15,000 anti-arrangement rule. Post-FA-2025, s.464A is the substitute route; the threshold is no longer £15,000 but the test of whether tax-avoidance arrangements existed. The substance test is harder for HMRC to meet than the bright-line test, but where the pattern is clear it is a workable route.

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). The real cost is the interest the company foregoes on the s.455 amount for as long as it sits without that cash. 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 write-off is treated as a distribution to the participator under CTA 2010 s.415 and is taxable in your hands at dividend rates. The DLA is cleared and the s.455 charge falls away. 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 post-FA-2025 framework changes very little, provided that plan was already running on substance rather than on the s.464C / s.464D bright lines. Repay your DLA out of genuine personal cash, redraw only for genuine new commercial purposes, and the omission leaves your plan untouched.

You are most affected if you were running short-cycle bed-and-breakfast patterns tuned specifically to the £5,000 / 30-day or £15,000 / arrangement thresholds. Those patterns no longer have a statutory safe-harbour structure. The planning has to shift: accept the s.455 cost on the cycle, switch to substance-based repayment, or restructure the extraction sequence so it leans less on DLA cycling in the first place.

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 now wrong.

Anything calling the 30-day or £15,000 rule live. Guidance that treats the "30-day rule" or the "£15,000 anti-arrangement rule" as the operative anti-bed-and-breakfast tests has been out of date since 30 October 2024. Read those as the now-omitted s.464C and s.464D, and substitute the residual s.464A arrangement-benefit charge wherever the question is whether a repay-then-redraw can still be challenged.

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.