Loan or No Loan?
10 years ago my brother gave me some money. He drew up a document which he signed which said, "Brother has made a personal loan to gtsix of £kkkkk. Brother agrees that this loan will not carry interest and the principal will not have to be repaid." This was to be used in my business which he had a significant interest in. Although the use of the "personal loan" was not stated in the original document, he drew up later documents that refer to this use (e.g. ". . . and £kkkkk was loaned to gtsix to use in the business").
Now he says that we had a verbal agreement "that you would repay the personal loan with rolled up interest at a reasonable rate after about ten years". He says it could not have been a loan without interest or repayment as that would be classified as a gift.
So loan or gift?
If a loan then it implies an obligation to repay at some stage (which by default is on demand). If it is found to be a loan, does it also create a liability and have tax implications?
My argument is that the reason that there was no expectation of repayment or interest was that he would get some advancement from the interest he had in the business (e.g. sale of his shareholding). Does this hold water?
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