My client and his wife were the only partners in a partnership which owned and ran 5 clothes shops. They were also the only directors of a company which ran 3 clothes shop. The partnership made a substantial loan to the company a number of years ago for trading purposes.
Last year, all 8 shops were sold to one purchaser and the proceeds split between the partnership and the company according to the estimated value of each shop. However, the proceeds allocated to the company were not large enough to enable it to repay the loan to the partnership.
My question is, are the partners able to claim capital loss relief under S235 (loans to traders)? The conditions do seem to be satisfied but I am concerned about the fact that the partners of the partnership are also the directors of the company.
Any thoughts would be greatly appreciated.
Tim Hill
Replies (2)
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Directors too
I am going to have to assume that the company is insolvent and is being wound-up so that the directors' loan accounts are, beyond a shadow of a doubt, irrecoverable. Note that I further assume the Balance Sheet did refer to the advance in these terms . If so, the mere fact that the clients are directors does not debar a claim for a capital loss and I can find nothing to suggest that , because the lenders were in (commercial) partnership, this totally upsets the applecart. By allowing a loss, the legislation is effectively making the debt a CGT-type asset : a partnership does not own the latter-- it is the partners in their capital-sharing ratios.