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NAMA writes off loan to company - taxable?

NAMA writes off loan to company - taxable?

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I have a UK client whose UK limited company has a substantial loan with an Irish Bank.  As has happened with many Irish banks - the loan has been taken over by NAMA (Ireland's National Asset Management Agency). Negotiations are ongoing as the underlying assets (properties) are worth a fraction of their cost.

It is likely that NAMA may accept a proposal to write off much of the loan - leaving the company with a property portfolio which at market value is equal to the reduced loan. Another bank will lend the money to clear the reduced NAMA loan figure. The company would end up with a balance sheet net asset value around zero (properties less loans).

If the write-off is taxable then the massive tax bill will scupper the prospects of the proposed write-off being a viable solution. 

The questions are: 

1) Does this write-off of part of the loan produce a gain which is chargeable to corporation tax?

2) Does anyone know, given how many UK people are affected by NAMA, whether there has been any agreed protocol between NAMA and HMRC to dictate how HMRC will view such write-offs for tax purposes?

3) Has anyone had a similar case and had formal or informal discussions with HMRC?

Thanks for taking the time to read this.

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By George Attazder
17th Nov 2011 11:42

Hmmm...

1.  It's a loan relationship credit, which is taxable.

2. No, but...

3. if HMRC didn't tax the credit (ie gave up part of its tax take), would it not be tantamount to the UK providing further financial support to the Irish economy?

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By edward33
17th Nov 2011 13:19

George

Good answer

 

My opinion is that the write off is a loan relationship crediit  and so taxable.

 

There is also a loss on the asset side but as things stand this has not been crystallised. Could the asset be sold to a pheonix company to realise the loss? (market value etc). Going forward would then have asset and equal liability in Newco.

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By BKD
17th Nov 2011 13:47

How would that help, Edward?

Taxable loan relationship credit and a capital loss (I'm assuming the properties are investment properties)

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By edward33
17th Nov 2011 14:49

BKD Investment or trading

Most of the NAMA type loans I have come across are to developers to purchase trading assets.

 

Agree that this doesnt help on Capital side.

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