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Husband/Wife Companies - DLA - Does TIS apply?

Husband company loans funds to wife's company to pay off loan owed to husband. Does TIS apply?

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Husband owns 100% of Company A which is quite profitable and has plenty of cash and distributable reserves.

Wife owns 100% of Company B which has had a poor run in the last few years and is loss making. Company has been kept afloat by husband providing funds so that he is personally owed £100,000 from Company B.

Company B is likely to cease trading very soon. Company A loans Company B £100,000. Company B uses this loan to repay Mr B.

Company B then ceases trading and going forward has nothing except a loan owed to Company A.

Is the above caught by transactions in securities legislation?

This would be done to get £100,000 out of Company A without the husband paying income tax, so there is the tax avoidance motive.

I believe the issuing of the new debt by Company A would be a “transaction in securities” under s684(2).

I think I already have my answer, that it is caught, but wondered what others thoughts might be?

Replies

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20th Feb 2019 09:43

Will there definitely be no other liabilities, including contingent ones, in Company B?

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20th Feb 2019 09:51

This seems to me exactly the sort of question that Aweb contributors want to be asked. So it’s a shame to see it ignored, whilst the questions that the contributors want to be ignored get all the responses from those very contributors.

The Aweb Paradox (™ pending).

So I’ll get the ball rolling. I can see where you are coming from. But this is the anti-avoidance provision that you would like to be relevant, isn’t it? Might HMRC not argue that the payment is being arranged by the directors by virtue of their directorships. Don’t you need to consider other TAARs (ones that are self assessed) before you get onto TIS, which isn’t?

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20th Feb 2019 09:52

Apologies IP - I see you had already kicked the ball.

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20th Feb 2019 11:47

This is effectively the same as him assigning (selling) a worthless asset to his company A for £100k, so will be a £100k distribution if nothing else.

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to Justin Bryant
20th Feb 2019 12:58

I'm not sure whether you have said the same as me - but much more concisely - or whether you are saying that it would be a distribution [if nothing else] even without either Ramsay or TIS (neither of which is self assessed).

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to Tax Dragon
20th Feb 2019 14:07

Why is Ramsay not self-assessed? Please point to a case/legislation that says that (you can't of course).

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to Justin Bryant
20th Feb 2019 14:31

You answer my question and I'll think about answering yours.

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20th Feb 2019 14:29

Might section 459 of CTA 2010 apply in this case?

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to Wilson Philips
20th Feb 2019 14:36

I don't see that, as the money is being used to repay a liability to, not of, the participator.

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to Tax Dragon
20th Feb 2019 14:53

I can see that, but if you look at the wording of section 459 it doesn't exclude the settlement of liabilities etc. In theory at least, it catches any situation where a company makes a loan (which we have here) and someone else makes a payment to the participator (which we also have here - the legislation does not stipulate what that payment must be for). There have to be arrangements in place for section 459 to bite, but it seems reasonable to me to argue that such arrangements exist in this case.

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to Wilson Philips
20th Feb 2019 15:03

I agree. I read too fast. Never, ever, do that with legislation. (How many times do I have to say that to myself. [Out loud, too, Cheshire.])

In this case though s459(3)(b) probably stops the charge from actually arising.

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to Tax Dragon
20th Feb 2019 15:14

Tax Dragon wrote:
In this case though s459(3)(b) probably stops the charge from actually arising.

But only if it is agreed that an income tax charge arises by virtue of another provision.
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to Wilson Philips
20th Feb 2019 15:41

Indeed.

And s459 is a self assessed charge. So, if there would be a charge but for s459(3)(b), the company presumably has to assess whether the individual will assess that he is taxable on the receipt. As if that wasn’t bad enough (well, in theory… of course, here it’s really all the same people), does the company (deciding that the individual will assess no tax) then have to assess whether HMRC will issue a notice under s698? [Or, if Ramsay has not already appeared in that sequence – see above – whether the Courts will apply Ramsay.]

How much are you being paid for this, my lupine friend?

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21st Feb 2019 09:48

Thanks for all the contributions. I didn't think it was a goer . I got too far ahead of myself considering TIS stopping it without even considering that it gets stopped before we even get to that stage. Worth a try I guess.

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21st Feb 2019 11:46

It pains me to do so, but I agree with Justin that there's a distribution, as a matter of company law.

There's no transaction in securities. A simple debt is not a security. A distribution has never been a transaction in securities, albeit that a distribution on a winding up is now explicitly included within the definition.

I do agree that the transaction would gets caught under s 459 if the transaction were not a distribution.

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to Vile Nortin Naipaan
21st Feb 2019 12:13

Can you direct me to the relevant provision? (I'm not disagreeing, but I can't see the provision that would treat this, as a matter of company law, as a distribution).

Another point that hasn't been raised yet is the subsequent treatment of the inter-company loan - especially as far as company B is concerned.

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to Wilson Philips
21st Feb 2019 12:20

There isn't a provision. There's case law on this sort of thing. Assets have left company A, and in consequence, Mr X has received assets from company B that he'd have had no chance of receiving if they hadn't first left company B.

In relation to your other point, that too depends on the first point. Was it ever really a loan? I mean, really? And more importantly, was it ever REALLY a transaction for the lending of money?

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to Vile Nortin Naipaan
21st Feb 2019 12:33

Thanks

When you said “company law” I assumed you were referring to the legislation. But I agree that in these circumstances the distribution treatment probably trumps section 459.

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to Vile Nortin Naipaan
21st Feb 2019 12:51

Thanks Vile.

You explaining what Justin may have meant isn't the same as him answering my question. Unless you are Justin. And none of us believes that.

So (to be clear) I feel no need here to think about answering his question.

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to Tax Dragon
21st Feb 2019 14:24

I said it's a distribution and that is self-assessed whether Ramsay applies or not (Ramsay is not just assessed by HMRC), so TiS is not relevant.

This forum has been massively dumbed down over the past 2-3 years. No wonder so many good posters have left.

That other dumb post today misreading CA 2006 legislation re reinstating struck off companies was typical also.

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to Justin Bryant
21st Feb 2019 14:43

Justin Bryant wrote:

This forum has been massively dumbed down over the past 2-3 years. No wonder so many good posters have left.

It's the good posters leaving that results in the dumbing down, not t'other way round. Folk that want to improve this forum need to stand up and contribute. (That's obviously not aimed at you - because you do.)

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to Tax Dragon
21st Feb 2019 15:24

(No offence intended to any longstanding contributors that haven't left. And some new ones - including one, who has contributed to this thread, and looks remarkably like Marion Crane - have had a positive impact.)

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to Tax Dragon
21st Feb 2019 15:55

You are too kind!!!

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