Novation of loan

Novation of loan

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A loan of £500k has been formally novated from subsidiary to holding company to improve subsidiary balance sheet.

Can anyone tell me:

1. the accounts treatment

2. the corporation tax treatment

Thank you 

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By Ruddles
23rd Dec 2015 14:09

I guess it will depend on the terms of the novation agreement

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By law man
24th Dec 2015 11:20

Novation

An accountant can answer your direct questions.

A novation is a tripartite agreement where:

Lender releases Subsidiary/ original borrower from liability for the loanParent agrees to be liable for the loan

The agreement should record the amount owing at the date of the novation; and the subsidiary pay interest up to that date.

I assume that from that date the loan appears as a liability on the parent's balance sheet; and parent as borrower sets off interest paid to lender as a deductible revenue expense.

 

 

 

 

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