Loaning money to children?

Loaning money to children?

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Hi,

An interesting one I haven't come accross before, I've recently taken on a new client who, in order to get around the £5,000 upper limit for loans to directors, wants to record loans to his wife, and also his children, two of which are under 13 years old!

This seems like quite a fiddle to me and my advice so far is that I don't feel that this would stand up under a HMRC investigation and they would say that it reality the loan is to the director and he would have to pay tax accordingly, but has anyone come accross anything like this before? How did it work out?

Chris

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By cathygrimmer
11th Oct 2010 09:42

It doesn't work!

The beneficial loan legislation applies to loans made not just to an employee but also to the relatives of an employee - unless they are receiving the loan as employees in their own right.. See here:

http://www.hmrc.gov.uk/manuals/eimanual/EIM26113.htm

So even if you could genuinely say the loans were made to the wife and children - they would still be taxed on the director. Yes, it's a fiddle - and an unsuccessful one at that!

Cathy

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