i have used 130k of my fathersbinheritance to purchase a pub for my 2 daughters, we are all directors, but only them 2 are shareholders
i only want 100k back over the 10 year lease, and i want to gift 15k to each of them
Am i correct in thinking that i as i am giving them a interest free loan, i wont pay no tax at all on it?
Also can i even write off 30k of the directors loan, or would the way i have to do it is, take back all the 130k through the directors loan, and then gift them 3k a year, with 6k being in the first year
thankyou, i have been to see 2 different local accountants, both giving very conflicting information, so i hope to come on here to clear it up
Replies (27)
Please login or register to join the discussion.
Your explanation is all over the place.
You say you have purchased a pub but then refer to being a director of something. Is that something a company? Is it perhaps the company, not you, that has purchased the pub?
If so, is it perhaps the case that you have lent the company some or all of the money it has used to buy the pub, but it has not yet repaid you?
You are not in a position to make a profit on the pub, because you have no interest in it to make a profit on. You say it is owned by a company in which you own no shares.
Do you want to give your daughters £30,000 of the £130,000 the company owes you or do you want to give it to the company they are shareholders in?
So you want to give your daughters £30k, not the company.
So as and when the company repays your £130,000 give some of it to your daughters until they have £15,00o each.
Check with your accountant how to space out the gifts to make the most of your IHT reliefs.
Does that achieve your objectives?
I confirm that if you lend a company £130k on an interest-free basis and the company repays you £130k or less you should not have any income tax issues to worry about.
There are different ways of transferring £30k to your daughters - all perfectly valid but with different tax consequences. For example, if you want to gift the cash 'directly' to your daughters then you can assign £30k of the loan to them. They'd then be free to draw down on that as and when it suits.
Or, as another for example (a more indirect method of transferring the cash to daughters), you could write off £30k of the debt. This would increase the reserves available to the shareholders, but with tax implications for both the company and, on extraction of the funds, the shareholders. (If you were to write off £30k they'd likely end up with significantly less than £30k.)
It's not a case of saying you can do one of the above things but not the other - both are options, but with different tax outcomes. Your choice.
[Edit] and John has given you a 3rd option above.
[Edit 2] and Portia has hinted at a 4th option below.
Given that the money comes from an inheritance from granddad, there's a really simple solution, if granddad died less than 2 years ago!
I'd have thought gifting to the company would be the option, and then don't die for a while (always a tough one to plan for, that).
There seems little point in creating a further debt in the company to pay £30,000 to the daughters. Gifting to the company will give them a draw down option later on.
In the interest of healthy debate, what did each of them tell you?
We can then advise which is full and fluff, and which one you should engage as your accountant.
Visit a 3rd - make sure he is professionally qualified - and see if he agrees with either of the first 2, or tells you something different again.
You haven't answered Portia's question (I assume that she is hinting a Deed of Variation on your father's Will). This could save you, your daughters and the company tax and make the problem disappear. So it is important.
Also, how old are you and are you in good health? (likely to live for 7 years?). And, if you died tomorrow, what would be the value of your Estate.
Portia didn't ask a question. Portia thinks the OP should go get some proper advice; not advice from monkeys being paid peanuts. Portia also thinks she should stop talking about herself in the third person.
Another thing Portia thinks is that the OP should avoid using double negatives.
Or not avoid not using double negatives? I'm not uncertain that that is not a different thing.
two different answers from two different accountants doesn't mean the advice you have received is wrong. As seen in this brief exchange above there are a number of ways to deal with this....but it really depends on how you have explained the situation and what is your end goal. If neither of these are clear then it comes as no surprise that you may on the face of it get 'conflicting' advice.
It is just as bad when you ask cat skinners for advice.
At least they did not ask two economists a question, they would have given at least three or four answers.
The two year period after a death is that within which beneficiaries of a will can agree to vary its terms. So one of your options is to vary the will so that your daughters inherit £30k from your late father's estate.
The first advice you received is effectively what I suggested above - it uses your annual IHT allowances. The second advice doesn't. It relies on you surviving for 7 years to escape IHT on the gifts entirely. If you are minded to do so, you could go back to the second accountant and ask them to explain why it "definitely wasn't best" to spread the gifts out to use your IHT allowances?
The short answer is do not waive the loan, as the company will be taxed on it (unless it has losses to offset that £30k profit). See:
https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm41080