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Interest on DLA before Distribution in MVL

Distribution of directors loan in MVL - over £10k so interest provided?

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A liquidator is assisting a client with a Member's Voluntary Liquidation. As HMRC are taking so long to give clearance, she has recommended that the director withdraw all cash funds as a director's loan and then it will be repaid via a distribution in specie.

I gather this is confirmed as being treated as a repayment of a loan in CTM61559 and so will be capital and should avoid s455 tax if within nine months of the period end. Presumably however, there is an exposure to benefit in kind taxation if it's over £10k and interest free.

What do others do in this instance? Accrue interest for a suitable period of time that gets added when the loan is distributed?  

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By Paul Crowley
15th Nov 2021 16:31

I usually prefer interest charged to BIK
Less admin

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By 1 2
15th Nov 2021 17:13

Personally we take a pragmatic view on this. The majority of the loan should be very short term (as normally big distribution in specie imminently following liquidator appointment). The motivation is for practical/risk reasons, it's not being done to benefit from a low/no interest loan. We're therefore happy justifying no interest, and no BiK.

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Replying to Maslins:
ALISK
By atleastisoundknowledgable...
15th Nov 2021 18:13

+1

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By More unearned luck
15th Nov 2021 20:04

Since the client is doing the 'liquidating' and not the liquidator (who is merely helping) the net assets are less than £25K.

What is wrong with an interim distribution?

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