I have a client Company which has 2 directors/shareholders. Both have have invested personal funds into the Company about 90K each. Now one of the director/shareholder is leaving and the remaining shareholder has bought his shares for £50K. As part of the deal the outgoing director has agreed to waive the credit balance in his directors account. What are the tax implications of this write off? As a loan is being written off is this income for C tax purposes?
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Yes
Taxable.
And for the individual's position, have a look at TCGA 1992 s253.
I assume you're happy that the £50k represents the open market value of the shares?
Without seeing the terms of the contract, I'd say with these sort of agreements it is unlikey to need to be written off.
It is probably being transferred to the purchaser as part of the deal, which the purchaser can draw on in the future.
Write-off
Why is the write off liable to corporation tax?
What makes you think that it wouldn't be?
Well...
Why is the write off liable to corporation tax?
What makes you think that it wouldn't be?
Perhaps because the write off of an overdrawn director's loan is non-deductible.... so it would be unfair if the release credit was taxable.
Unfair, perhaps
But who said that tax has to be fair?
The credit is one arising under loan relationship legislation and in absence of a specific exclusion it will be taxable,