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S455
If you mean S455 the simple answer is No.
A loan by one company to the other, assuming he is a participator in both of them, is not caught by S455. Of course, any loan by either of them to him would be.
I am not sure
That a loan from company A to company B, so that company B can buy property is any less of a non-trading activity than direct investment in property.
So, yes, I think there is the potential for ER to be just as affected.
I agree with John that there are no section 455 considerations with an intercompany loan.
On the ER point, it seems to me that making a loan is more like holding cash than investing in property. If the holding of cash (presumably accumulated undistributed trading profits) doesn't offend for ER purposes I am not sure why lending it out would.
John
I think it was the OP that suggested charging interest. The question of whether an activity is substantial is not solely dependent on income though. HMRC will also look at assets.
We do not know that ER is not tainted by the holding of excess cash. HMRC once used to say that holding cash could be a non-trading activity. They have stopped saying it, but that does not mean they have stopped thinking it.
I agree that an intercompany loan like this is in much the same boat as cash.
Why do you think that? As
Why do you think that? As you say, "we all have clients with Interco loans to related companies where there is no interest charged".
If the loan is repayable other than on demand, then when FRS102 and FRSSE (2015) kicks in, interest will have to be charged/credited through the accounts (but not necessarily paid, of course) as these instruments will have to be stated at fair value. I've no idea how this might affect tax.
Accounting adjustment
If the loan is repayable other than on demand, then when FRS102 and FRSSE (2015) kicks in, interest will have to be charged/credited through the accounts (but not necessarily paid, of course) as these instruments will have to be stated at fair value. I've no idea how this might affect tax.
Agreed - but those are accounting adjustments - which are of course tax neutral over the life of the loan. Nothing to do with HMRC.
Holding company owns both trader and newco.
Divis to Holdings tax free
Holdings does the lending
Trader does not hold any assets (loan receivables etc) that could be seen as non trading
ER and suggested group structures
In order for the shares in any holding co to qualify for ER, it must be the holding co of a trading group. If the (or one of the) subs was the property investment company, then the assessment of whether there was a substantial (>20% by a no of different possible measure per HMRC commentary) non trading element would be carried out at group level, so eg if > 20% of value of gross group assets were represented by the investment properties in the subsid, the qualifying condition would not then be met.