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Non collection of Loan as consideration for shares

Can an overdrawn DLA be waived as part of total consideration for shares and get capital treatment?

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Jack and Tom hold shares in a company 50/50. They have fell out and so need to go their seperate ways, Jack owes the company £1m due to drawings he has taken. Tom is going to buy Jack out, but in considerationn for his shares has suggested waiving the debt Jack owes to the company. Can Jack still get capital treatment on the amount of the loan written off as this is deemed to be money's worth consideration for the shares. Or can anyone tell me if there any other tax implications?

Many thanks

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By Wanderer
20th May 2020 05:39

Quote:
Non collection of Loan as consideration for shares
Can an overdrawn DLA be waived as part of total consideration for shares and get capital treatment?

Jack and Tom hold shares in a company 50/50. They have fell out and so need to go their seperate ways, Jack owes the company £1m due to drawings he has taken. Tom is going to buy Jack out, but in considerationn for his shares has suggested waiving the debt Jack owes to the company. Can Jack still get capital treatment on the amount of the loan written off as this is deemed to be money's worth consideration for the shares. Or can anyone tell me if there any other tax implications?

Many thanks

Homework?

Perhaps it would be better if you gave what you feel are the tax implications rather than get others to do all your research for you.

With £1m at stake perhaps Jack & Tom should get some proper, paid for, advice.

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By Tax Dragon
20th May 2020 06:46

The tax on £1m should be enough to make the wisdom of that suggestion self-evident.

This new laissez faire version of Aweb is throwing up some truly extraordinary questions.

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By Duggimon
20th May 2020 08:12

Jack and Tom sound like hypothetical people, so I would suggest Jack pay the company a hypothetical £1m to settle his hypothetical loan, and then this hypothetical company can buy back his shares. This may or may not be the best way to proceed but in the absence of more hypothetical information it's hypothetically as good as any other option, though I would advise seeking assistance from a hypothetical adviser, hypothetically speaking.

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By johngroganjga
20th May 2020 11:17

From what you say, the debtor is not having his loan "written off" or "waived". Far from it. He is repaying it by transferring his shares. There may be an element of waiver if the shares are not worth the amount of his loan on any normal analysis.

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By SteveHa
20th May 2020 11:34

And capital treatment would be subject to HMRC clearance.

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