Gifted Income Limited Company

Gifted Income Taxable Income

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Hi,

I need some advice please. I have a client which is a limited company. There are 4 directors. One directors parent has gifted income to the company for a deposit for a property that will become a rental income property for the limited company.

My question is, is that gifted income taxable under corporation tax as the company would not be able to trade without the income being injected to get their first property? If not what would be the correct accounting treatment?

Thanks

Replies (18)

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By Paul Crowley
13th Feb 2021 13:54

Has he really just made a loan?

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Replying to Paul Crowley:
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By spel2k
13th Feb 2021 14:09

One of the directors mother gifted the company the money so they could have there first deposit for a mortgage.

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By CJaneH
13th Feb 2021 14:32

Surely
Gift to son - conditional on him lending it the company.
Son lends to company- directors loan

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Replying to CJaneH:
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By spel2k
13th Feb 2021 14:42

Yeah I initially thought this. But the money has been transferred straight to the business account from the mother. Not firstly to the son and then from the son to the business.

Does this not make a difference?

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Replying to spel2k:
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By Paul Crowley
13th Feb 2021 15:01

No
For IHT purposes
Who received the gift?
Does deed say 'out of love and affection to a non person I give.....'

If a real gift to company, figure out the double entry
balance sheet or income?
If income taxable?

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Replying to Paul Crowley:
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By spel2k
13th Feb 2021 15:26

The company received the gift to gain the first property. If the money is gifted to the company to allow it to trade. Is that gifted money not taxable?

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By Paul Crowley
13th Feb 2021 15:17

Directors are irrelevant
Who owns the shares

Why property in company?
Is client watching You tube videos and think they are experts?

Give them some proper tax advice and get that advice in writing.
Do not let them blame you for their dumb decisions.

If property sold in 2 year's time, how much extra tax has been paid?
The gift gets taxed yet again?
Companies cannot make gifts and if they could, they do not get tax relief

What is gift in
I postulate loan relationship rules make it a profit arising from 'gifter' writing off a loan.

Of course not come across this before as not had a client that Dumb

Over to others that have, if there are any, on the list of regular responders

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Replying to Paul Crowley:
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By spel2k
13th Feb 2021 15:30

The have set up a limited company and are buying properties under the limited company to rent the properties out. Receiving any future income from the rental

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By Paul Crowley
13th Feb 2021 15:43

Who prepares the accounts and tax?
Get client to talk to that person
May not yet know client decided to even get a company.

I have one company only with a residential property in it
We were not informed
Director took advice from her partner who read an article in a magazine.

I really hope they decide to claim on the magazine's PII

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Replying to Paul Crowley:
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By spel2k
13th Feb 2021 16:05

Thanks for the responses by the way.

I will be preparing the accounts and tax. This is why I'm asking how to treat the gifted income. Whether or not this should be on the balance sheet as a directors loan or it should be treated as income and liable for corporation tax as its income to enable the company to trade. I interpret this from the business manual on hmrc business income manual BIM41810. Thanks. Lee

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Replying to spel2k:
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By Youareatit
13th Feb 2021 16:07

Perhaps you shouldnt be

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Replying to spel2k:
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By Paul Crowley
13th Feb 2021 16:28

Please remember it is tax law that needs to be considered
Not the HMRC opinion of the law
HMRC are quite often wrong, and quite often ignore their own guidance

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Replying to Paul Crowley:
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By spel2k
13th Feb 2021 18:11

Yeah I understand that, I have had some miss guided info from HMRC before.

So do you know if the gifted income should be taxable? I've reviewed the tax law too and cannot seem to find any guidance.

Thanks

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Replying to spel2k:
RLI
By lionofludesch
13th Feb 2021 18:25

Quote:

Yeah I understand that, I have had some miss guided info from HMRC before.

So do you know if the gifted income should be taxable? I've reviewed the tax law too and cannot seem to find any guidance.

Thanks

Similar debate from three years ago.

https://www.accountingweb.co.uk/any-answers/treatment-of-financial-gift-...

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By lionofludesch
13th Feb 2021 16:04

Why has the director's mum done something so daft ?

This is a rhetorical question as you'll never know the answer.

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By fawltybasil2575
14th Feb 2021 11:47

@ spel2k (OP).

It is the duty of the Directors to prepare the Financial Statements, albeit in most cases (as in your case) you have been engaged to substantially assist in that preparation.

Ideally, when the mother paid monies into the company, the Directors should have determined precisely whether the monies transferred represented a gift by the mother direct to the company, or whether those monies were intended to be treated as monies introduced (whether by way of gift or loan) by the son.

However, to use the hackneyed expression, “we are where we are”, it is certainly not too late to determine (this being the crucial point) how the PARTIES intended the money transfer to be treated, since it is that INTENTION which determines how the Financial Statements (still to be prepared) should reflect that money transfer.

You have indicated that there are 4 Directors, but not indicated who are the SHAREHOLDERS. I surmise (albeit this is not certain) that the Directors hold the shares equally (ie 25% each - please clarify).

The fact that the monies were transferred direct to the company is NOT conclusive, in determining how that transfer should be reflected in the Financial Statements. That transfer simply indicates that there were AT LEAST two parties to the transaction. It is probable that there was a third party, namely the son of the mother.

The way forward is to obtain a letter from the mother, indicating precisely what the money transfer was intended to be, which could be indeed a gift to the company itself (in which case the benefit of it is shared between the shareholders, and would be taxable on the company); or whether, far more likely, it was intended to be a loan (or, more likely, a gift) to her son.

Upon obtaining that letter, the Directors (whose responsibility it is, to reaffirm, to prepare the Financial Statements) should, preferably at a formal meeting, accept the mother’s letter as a valid statement of the nature of the money transfer; and of course you should receive a copy of the minutes of that meeting. Those minutes should also, of course, indicate agreement, if so agreed , to the money being credited to the son’s Directors Current Account.

You can then safely prepare the Financial Statements based upon what the parties have agreed.

Basil.

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Replying to fawltybasil2575:
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By spel2k
16th Feb 2021 20:38

Thanks Basil. What a excellent response that was. Very informative and clear. You were correct in your presumption on the directors being equal shareholders. Thanks again for the help.

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By Tax Dragon
17th Feb 2021 18:28

Has anyone actually answered the question? I'm not seeing the gift to the company (assuming this is confirmed as being what happened) as taxable on the company.

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