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Loan to a friend for one year

Tax implication. Loan to a friend.

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My friend can get a large discount to buy a new car. However the condition of the discount is that he must own the car for 1 year.

I would like to send him £57000 to purchase the car for me and after one year he will transfer the car me. 
 

Can anyone see any tax implications for both parties. We are both in full  time job. No business income our than rental income.

It's a personal agreement. Besides the normal risks associated with leading do we have any HMRC considerations to take account. Both parties are 40% tax bracket. 

Kindly advise

many thanks

Replies (31)

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By sarahg
26th Jan 2022 16:43

I would suggest that you pay for some advice with all the facts

This is a forum for accountants to ask other accountants questions, not to give out free advice

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Replying to sarahg:
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By Brend201
26th Jan 2022 17:45

Just as an aside: he (or she) is a member of this forum for over 21 years!

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By pauld
26th Jan 2022 16:50

No tax implications. Only implication is that you have to hope he remains a good friend for the next year.

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Replying to pauld:
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By gup262
26th Jan 2022 17:00

Thanks for your advise. I was not sure if the loan could be regarded as income by the tax man.

We will draw up a simple agreement to confirm it’s a loan with no interest charged.

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By Tax is always taxing
26th Jan 2022 17:10

No real tax issues from your side - but you may be getting fleeced for £60k - who knows.

Never seen a deal where you have to pay £60k for a car but are restricted from selling it for a year. If he is signing a contract to this effect then I would be wary if i was him.

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By Tax Dragon
26th Jan 2022 17:15

So you pay for it but he drives it?

Can I be your friend too?

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Replying to Tax Dragon:
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By gup262
26th Jan 2022 17:40

Well the manufacture of the car gives a big discount only if the car is bought and kept by the employee for one year. He will be the registered keeper and owner of the car for 1 year. I will be insured to drive the car as the main driver. He is simply purchasing the car under his name. We are not taking any finance as this will complicate the issues. He is doing me a big favour. We have raised funds to pay for the car.

Good friend indeed.

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Replying to gup262:
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By Tax Dragon
26th Jan 2022 18:03

Kept by the employee probably means what it says, but hey.

.oO Wait... employee? (.oO NHS? A dishonest doctor?) Is there tax on the discount? Are you paying that for him? Seems only fair.

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Replying to Tax Dragon:
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By Hugo Fair
26th Jan 2022 18:30

Whatever happened to the smell test?
Or has that become another victim of Covid?

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Replying to Hugo Fair:
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By Tax Dragon
26th Jan 2022 19:41

Hugo Fair wrote:

Whatever happened to the smell test?

Are you referring back to the OP's statement

"We will draw up a simple agreement to confirm it’s a loan with no interest charged"?

A simple agreement that requires no interest and no return of the capital lent but that is a loan?

By the way, the it-really-is-a-loan, honest, is being made only because of the employment. It's not that I go looking for tax charges (other than to plan them away), it's just that they tend to present themselves when the facts come out.

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Replying to gup262:
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By David Ex
26th Jan 2022 19:19

gup262 wrote:

Well the manufacture of the car gives a big discount only if the car is bought and kept by the employee for one year. He will be the registered keeper and owner of the car for 1 year. I will be insured to drive the car as the main driver. He is simply purchasing the car under his name.

I’d put money on that being contrary to the terms of the employee discount.

Do you have an insurable interest in the car if you are neither the owner or registered keeper?

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Replying to David Ex:
RLI
By lionofludesch
26th Jan 2022 19:28

David wrote:

I’d put money on that being contrary to the terms of the employee discount.

Do you have an insurable interest in the car if you are neither the owner or registered keeper?

He's just a named driver, not the policy holder.

Agree with you about the terms, though. Needs checking.

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Replying to lionofludesch:
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By David Ex
26th Jan 2022 19:58

lionofludesch wrote:

He's just a named driver, not the policy holder.

Agree with you about the terms, though. Needs checking.

Poster said “main” driver, if that makes any difference.

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Replying to David Ex:
RLI
By lionofludesch
26th Jan 2022 20:05

David Ex wrote:

lionofludesch wrote:

He's just a named driver, not the policy holder.

Agree with you about the terms, though. Needs checking.

Poster said “main” driver, if that makes any difference.

Doesn't mean he's the owner.

A company will have a policy in the company name but the company won't be doing the driving.

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Replying to David Ex:
paddle steamer
By DJKL
27th Jan 2022 07:53

Not a problem, surely, for periods of time (Day/Week/Month) my kids took out a distinct policy to drive our cars when they were learning, they were not the keeper or owner it was just cheaper than sticking them on our policy given the limited time they would be around.

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Replying to gup262:
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By gillybean04
27th Jan 2022 09:58

So is your friend also going to drive the car, and are you going to collect and return the car to him each day?

Because if not, then you are the person who should be named as the registered keeper.

I'd voice concerns that if there is eligibility criteria to obtain the discount, and you and your friend need to lie to obtain it, then you may be committing fraud.

Your friend may also wish to investigate the potential consequences (including loss of his job) for abusing schemes made available to him as an employee.

In summary, you should both get legal advice.

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By lionofludesch
26th Jan 2022 19:10

Is this a private car or is it going to be used in some business or other?

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By gup262
26th Jan 2022 20:07

Private use only.

With regards to discount voucher given by the manufacturer. All family members enjoy the discount but it excludes friends. As the discount on a new car can be from 10 to 20% they don’t want people to sell the car and make profit. Which makes sense.

We have no plans to sell the car for profit or loss.

My friend is buying the car on my behalf I am allowed to insure the car as a main driver. On the insurance policy it states the owner and keeper don’t live at the same address.

Before we commit I wanted to be sure we don’t have any tax liability for either party.

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By gup262
26th Jan 2022 20:13

Taking advantage of the discount offered to a friend. No other objective.

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Replying to gup262:
RLI
By lionofludesch
26th Jan 2022 20:30

gup262 wrote:

Private use only.

With regards to discount voucher given by the manufacturer. All family members enjoy the discount but it excludes friends. As the discount on a new car can be from 10 to 20% they don’t want people to sell the car and make profit. Which makes sense.

We have no plans to sell the car for profit or loss.

My friend is buying the car on my behalf I am allowed to insure the car as a main driver.

You're not allowed to insure the car at all.

It's not your car.

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Replying to gup262:
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By Hugo Fair
26th Jan 2022 20:48

"All family members enjoy the discount but it excludes friends" ... which is basically exactly what your friend (as an employee of the manufacturer?) is offering to do.

I can see the manufacturer (should they discover your use of the car as 'main driver') interpreting the gift/loan as breaking the terms of their discount ... and demanding re-imbursement from your friend for a fraudulent discount (or worse if he is their employee).

It's not always only about the tax!

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Replying to gup262:
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By David Ex
26th Jan 2022 22:39

gup262 wrote:

Taking advantage of the discount offered to a friend.

So it’s a misuse of the discount scheme. You said “All family members enjoy the discount but it excludes friends.” In other words, NOT offered to friends which presumably means your “loan scheme” is contrary to the spirit if not the letter of the discount offering.

Put the shovel away and stop digging. If your friend is happy to risk his job, go for it.

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By Tax Dragon
26th Jan 2022 21:55

I looked up s175. Just coz - you know, it's what I do for fun.

Even were the arrangement that isn't a loan a loan (....oO here we go again, lion?), it wouldn't fall within the s175 definition. The usual 'by reason of' clause is absent.

Always look; never assume.

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By Tax Dragon
27th Jan 2022 10:24

Tax Dragon wrote:

Kept by the employee probably means what it says, but hey.

Based on other comments, it sounds like I should have said "but hey, it's only fraud". Although what is really cementing that thought in my mind is that Justin hasn't popped by to say it's not.

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Replying to Tax Dragon:
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By Hugo Fair
27th Jan 2022 11:49

Well, I deliberately refrained from using the word 'fraud' (knowing it has specific connotations) and only referred to a "fraudulent discount" ... but should have made my point clearer by saying "fraudulent misrepresentation in the discount claim".

"A fraudulent misrepresentation is a statement that a defendant makes knowing it was false or makes recklessly to induce the other party to enter a contract. The injured party can seek to void the contract and to recover damages from the defendant."

What are the 4 elements of fraudulent misrepresentation?
* A representation was in fact made;
* That particular representation was false;
* The defendant had knowledge that the representation was false;
* The statement was made with the intention that the other party rely on it and enter into a contract or agreement.

We don't know exactly what declarations or signed documents the friend has to provide in order to obtain the discount, but it's unlikely to be just "Please I'd like".

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By gup262
27th Jan 2022 13:31

We have given up the options of using the discount. Based on your feedback.

The main purpose of the query was to understand the tax implications of lending to a friend and not having the loan treated as income.

I think on that point I can be rest assured as long as it’s a loan to be repaid then we have no action to take as far as HMRC is concerned. If we have any gain then this will need to be declared as this constitutes as Income.

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Replying to gup262:
RLI
By lionofludesch
27th Jan 2022 13:51

gup262 wrote:

The main purpose of the query was to understand the tax implications of lending to a friend and not having the loan treated as income.

Loans are never income. Folk don't expect to be taxed on their mortgage advances and quite right too.

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By accountaholic
27th Jan 2022 13:37

I've seen similar before with large companies who can get a substantial discount on their company fleet. Usually there is an agreement between the car manufacturer and the company about the level of discount given and the conditions attached to that discount. Usually this would specifically state cars could not be sold within a period of time. If it was sold then the manufacturer could ask for the discount to be repaid. I don't think there was ever any declaration at the time of each individual purchase, so you and the employee in this case may not have made any false statement, but there may be something in the employee/employer paperwork about it.
As mentioned above, manufacturers don't want the discount given to large fleet buyers being passed on to third parties so that's the reason for the stipulation. In practice though, they may be quite lax about occasional infringements . They still get the sale rather than you buying a competitor model and the motor trade are slaves to market share.

In answer to your specific question - agree with above - no tax implications.

On related items:
Employee may have a problem but need to check what agreement they are party to - is it direct with the manufacturer or with the employer. The employer may in turn be fully in the know and just helping out the employee, so risk would then be for the employer.
And defo double check insurance is in order given the owner/driver/keeper debate. It's probably the biggest risk of all for you(rather than tax or your friend's job) as driving without insurance is a serious offence.

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By gup262
27th Jan 2022 13:54

Agreed. Our aim was at all times abide by the terms and conditions of the agreement of the discount.

Insurance would have been the next issue to tackle if we are to go ahead.

If the condition of the discount states that the car cannot be sold for 1 year and it must belong to the discount holder then we would make sure these requirements were completely meet.

At no point in our discussion with our friend we had planned to commit fraud rather take advantage of the discount based on the condition of the sale.

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Replying to gup262:
RLI
By lionofludesch
27th Jan 2022 14:18

gup262 wrote:

If the condition of the discount states that the car cannot be sold for 1 year and it must belong to the discount holder then we would make sure these requirements were completely met.

Worth pointing out that, while you both believe that, it would be your friend's job on the line, should his employers disagree on your interpretation of the terms.

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By I'msorryIhaven'taclue
27th Jan 2022 14:23

If this was for an all-electric car then none of the people I know with them seem to like them much. One even sold his back to the dealer (for £5k more than he paid for it - I have no reasons for that).

I have my eye on a new (non-electric) BMW, and shall be sending you a friends request.

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