Some solicitors are prepared to make temporary loans to clients
to facilitate legal transactions already in train, for example, if
a client cannot pay for the house he is buying until he has been
paid for the house he is selling, the solicitor may make a bridging
loan so that the purchase can proceed as planned. In some cases the
solicitor himself borrows temporarily from his bank for the
purpose. Interest received and paid on such temporary borrowings,
the only purpose of which is to remove an obstacle to the progress
of professional legal work, may be regarded as a professional
receipt or expense of the solicitor's practice.
A loss on a temporary guarantee given by a solicitor in order
to expedite a particular legal transaction may similarly be allowed
Jennings v Barfield [1962] 40TC365.
In contrast, interest received by a solicitor other than on a
temporary loan relating to a transaction in hand should be regarded
as investment income assessable under Case III of Schedule D. Thus
an advance to a speculative builder, although it may generate
future legal business, should not be regarded as an integral part
of the professional activities. As a corollary, if the borrower
fails to repay the loan, any claim to deduct the loss as an expense
of the practice or as a bad debt should be refused (see
BIM42710).
