Hello
If a company (which is private equity owned and is considered close) has loans made to it from participators (loan creditors) which are then written off, thus resulting in income in the company's P&L, is that income taxable on the company? My guess would be yes, although as the write off of loans TO participators aren't deductible, I was wondering if there's inequity there. Anyone know off the top of their heads?
Cheers
Aid
Replies (9)
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Surely
This could be carefully drafted as a capital contribution (rather than a simple deed of loan waiver) and so not taxable? Even if that's not possible, can't the debt just be written off in the accounts without a formal waiver? Cue endless technical discussion about that. Or just let the loan go irrecoverable after 6 years Limitation Act period without a formal loan waiver write off. If loan is >£325k, you may need to consider IHT @20%.
Taxable
It's tax madness to do this.
If the client really wants to do it, he'd be better with some form of reconstruction, or chipping in a boatload of share capital.
There are two options really
1. Take specialist advice
2. Don't do it
I don't see a request for alternative courses of action.
But in any event how could the company recognise a credit without a formal release?
And after 6 years what would your accounting entries be?
Yes
lionofludesch's alternative debt to equity conversion works also and the shares could (later) convert to worthless deferred shares, but again you need to watch any IHT issues.
Can
It's all part of a change in ownership and there has been a major refinancing during the period where loan notes and accrued interest have been repaid but some havent. The interest and loan capital not repaid has been written off to the p and L. new loan notes have been issued by the new PE members.
A huge can of worms suddenly opened there.
Specialist advice is a must.
If
You are going down the debt to equity route with deferred shares, you also need to watch any <5% dilutions re CGT entrepreneurs' relief per Alan Castledine v Commissioners for HMRC [2016] UKFTT 145 (TC). ttp://www.bailii.org/uk/cases/UKFTT/TC/2016/TC04930.html