Assigning loan from Company to adult children

Assigning loan from Company to adult children

Didn't find your answer?

Parents injected £300,000 of loan money into newco. new co used to buy commercial premises.

Parents now wanting to assign the loan due to them from Company to 3 adult children (who will shortly become shareholders in the Company).

Am I right in saying there are no immediate tax issues, other than it's a PET for IHT purposes subject to 7 year rule etc?

I cannot see there is any settlement legislation issue?

The Company will pay a market rate of interest on it and probably pay some capital off each year. only the interest will be taxable on the children?

I assume it is wise to prepare some documentation to evidence the gift / assignment?

Replies (2)

Please login or register to join the discussion.

By johngroganjga
27th Apr 2015 12:00

Yes no tax issues except that it is a PET.

Yes needs to be formalised by deeds of gift.

 

Thanks (0)
avatar
By Montrose
27th Apr 2015 12:36

Not so fast

What are the terms of the loan?  What shareholdings will the children have.

Points to consider.

1] is the transfer of value equal to the face value of the loan.  Suppose the company has £100 share capital and the existing loan is unsecured. Is the value of the loan equal to its face value-would a commercial lender  have loaned money even at interest on such terms ?

2] if the parents remain shareholders is this a GROB? If the loan is not commercial on all terms, not merely interest, does the retention of shares in  a company enjoying such a non- commercial  give rise to problems?

3] Watch out for IHTA s98, which could apply if there is any alteration to the terms of a loan[such as the putting in place of a formal arrangement to pay interest]. Why this is so important is that - if the section applies- then by virtue of s98(3) any transfer of value by virtue of putting in place of theses arrangements is not a PET, Arguably this result might be avoided if the loan is formalised before the gift.

4]If the property has increased in value since purchase by Newco. consider CGT consequences of the children acquiring shares.

Thanks (0)