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.
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.