I have a ltd co client with 1 director/shareholder. Currently 1 £1 Ord issued. Authorised 100 £1 Ords. Loans of £20k have been made to the company by related party (his wife). For tax reasons they now want the loans to be reclassified as share capital. They are happy for the shareholdings/owner %'s to change. Can I get confirmation that the easiest thing to do here is simply increase the authorised capital and buy at par? Would appreciate if someone could also advise on the tax implications if any.
Cheers
ST
ST
Replies (3)
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I'd like to know...
...what are the tax reasons for changing the loan into shares? That would help with the answer.
Theres a little bit more to it.....
A bit more if it'll help......
- Business reason for conversion is that they don't want to repay the loan.
- Legal reason is that they want the majority shareholding to be switched.
- Tax reason, wife not using any allowances, let alone basic rate band!
Let me know if you need any more pieces of the puzzle!
Cheers
Why?
I would still ask the question, why?
Once the loan is share capital they cannot repay the amount even if they wanted to. If she is not using basic rate band why not charge interest on the loan. Taxed at 40% on her but is deductible for the company. Have they consdered the implications of changing ownership?