CGT payable on written-off portion of overdrawn capital account

CGT on written-off partner's capital account

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I was a member of an LLP which went into liquidation last year following several years of unprofitable trading. Whilst trading I was permitted to take some drawings as the LLP was my sole source of income. That means that when the LLP went into liquidation I had an overdrawn capital account to the tune of some tens of thousands - not an insignificant sum, but which had accrued over a long time.

I now need to make an offer to the liquidator on repaying the overdrawn amount - the offer that I make will be less than the total amount owing. So if it is accepted, the remainder of the overdrawn account will be written-off.

Will I have to pay CGT on the written-off amount? I have had conflicting advice on this from the liquidator and from my accountant, and I have spoken with a couple of different tax professionals who have also not been able to clarify the point for me. I see this as quite important, as the offer that I make to the liquidator will need to take this into account. 

If I do have to pay CGT, would I be in any way eligible for entrepreneurs relief (which was mentioned by one of the advisors)?

Replies (3)

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By johngroganjga
27th May 2016 11:47

Why do you think the liquidator will not collect the full amount from you? How would that be fair to the other parties involved? I think you may be wasting your time investigating the tax consequences of being allowed to keep some of the money you owe.

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Replying to johngroganjga:
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By babyls
27th May 2016 12:15

I have already had that conversation with the liquidator.

I'm not in a position to pay the full amount, so he has invited me to make an offer for what I can afford. I am now in the process of confirming exactly what I can afford, and the tax question forms part of that calculation.

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Replying to babyls:
By johngroganjga
28th May 2016 11:25

Then the LLP just had a bad debt because you are insolvent. I don't think insolvency triggers a tax charge to the extent of an insolvent debtor's unpaid liabilities.

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