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Loan or No Loan?

10 years ago my brother gave me some money. He drew up a document which he signed which said, "Brother has made a personal loan to gtsix of £kkkkk. Brother agrees that this loan will not carry interest and the principal will not have to be repaid." This was to be used in my business which he had a significant interest in. Although the use of the "personal loan" was not stated in the original document, he drew up later documents that refer to this use (e.g. ". . . and £kkkkk was loaned to gtsix to use in the business").

Now he says that we had a verbal agreement "that you would repay the personal loan with rolled up interest at a reasonable rate after about ten years". He says it could not have been a loan without interest or repayment as that would be classified as a gift.

So loan or gift?

If a loan then it implies an obligation to repay at some stage (which by default is on demand). If it is found to be a loan, does it also create a liability and have tax implications?

My argument is that the reason that there was no expectation of repayment or interest was that he would get some advancement from the interest he had in the business (e.g. sale of his shareholding). Does this hold water?

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20th Sep 2012 16:30

The loan should be governed by the written agreement. If there was a verbal agreement that would/should have been evidenced by the later documents at least. However this is family so negotiation is called for. Further if the money was advanced for the use of the business as a directors loan and this carried interest that would be have allowed as an expense against profit . It's worth asking the company's accountants what their records show in relation to the loan

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20th Sep 2012 20:10

10 years ago...

...statute barred, end of

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21st Sep 2012 09:37

Depends on the terms of the written agreement

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By gtsix
21st Sep 2012 10:24

Statute barred

bernard michael wrote:

Depends on the terms of the written agreement

The only terms are -- verbatim and complete -- exactly as I quoted in my first paragraph. There is nothing more. The problem with the Limitations Act is that the 6 years starts from breach of contract. As there is no express term on this loan it is by default payable on demand and hence there is arguably no breach. At least that's my understanding.

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