Fred has been Trading as A Ltd for many years and made good profits. He owns A Ltd 100%.
He set up B Inc (overseas) last year to explore a new field of business. B Inc. is also owned 100% by Fred. No subsidiary connection, just common control.
A Ltd has lent B Inc £100k to fund its venture. This venture has failed and the loan is not recoverable.
Ignoring the tax treatment for B Inc as it is overseas and looking just at A Ltd can someone please confirm;
- A Ltd will NOT get a CT deduction for the £100k write off - my understanding
- Will Fred get any taxable benefit on the write off? As he had used A Ltd's money to fund B Inc. Which if A Ltd were looking at it commercially may not have given a 100k unsecured loan to BInc - it was just the fact Fred had authority. Or is there no issue - sorry jus hypothetical thinking.
Any help gratefully received.
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It's don't think the overseas element can be ignored in properly advising on this one.
Normally, there's no CT deduction for loan write-offs between connected parties.I don't think the overseas element changes this.
As far as the inter-company loan goes, I think the position is unclear, especially considering the overseas part.
Normally there shouldn't be any benefit to Fred, as the benefit was actually in the hands of company B, and not him. The position could be though, that Fred had a credit balance on his company B DLA. In this case the loan could effectively mean he would make good his own personal loan to the company. This would indeed be a benefit to him from company A.
There's probably a host of anti avoidance on this.
In addition, there could be rules in the country of B Ltd, which allow Fred to take the £100k out of company B tax-free. Again, if that we're true, it would mean he could effectively get money out of company A tax free.
For these reasons, I'd probably say the loan w/o if definitely no CT deduction, but there's probably anti avoidance provisions that will catch Fred with a personal tax charge - so this needs looking into further.