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DLA credit -convert to shares prior to winding up?

Best way of relief

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Hi

We have a limited company client, the director is owed say £50k and the company has no other liabilities.

The director wants to wind  the company up and we are seeking the best method for any sort of reliefs. I am not aware that there is any such relief available on the loan loss itself but is it possible for the director to use the amount owed to them to purchase 50,000 shares in the company. Then when the company closes the director will have a capital loss which can then be releived against future capital gains - Is this possible to do and is it legal to do so?

Many thanks

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By Wanderer
19th Jun 2019 14:55

Does this apply?-
https://www.gov.uk/government/publications/debts-and-capital-gains-tax-h...

HMRC wrote:
Loans may include credit balances on a director’s loan account but not ordinary trade debts.
Thanks (1)
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By AnnAccountant
19th Jun 2019 15:47

If it is a capital loss he is after, why can't he claim it if the company goes bust owing him the DLA?

Thanks (0)
Psycho
By Wilson Philips
19th Jun 2019 15:54

There are conflicting potential issues here.

If the debt is converted then the base cost of the shares will be the value of the loan. If there is no prospect of the loan being settled there will be no tax base cost to the shares. And since the loan will have been settled in full, albeit by shares with no value, there will be no loss claim on the loan.

The alternative therefore is simply to dissolve the company and claim the loss relief. In order to do so, though, you are required to make a statement to the effect that all liabilities of the company will be settled. If the company is struck off without repayment of the debt there may be a presumption (correct or otherwise) that the director has released the company of its obligation, creating a taxable credit. Whether that matters or not would depend on the company's position - presumably it is sitting with losses.

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Lisa Thomas
By Insolvency Practitioner
20th Jun 2019 10:32

It will cost the Director at least £3-£5k to Liquidate the Company.

They should compare this with any reliefs they might be able to claim on the write off.

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