Trading partnership (fish shop), with 3 partners (pensioner parents and son - all working in the partnesrhip). Son admitted as partner in 2014. Son overdrew his account over the years by £40k because of drawing more than profit share. Effectively the son draws all profits. Profit share ratio is 75% to him and 12.5% to each parent. I have a couple of questions:
How will HMRC treat the overdrawn balance? In my thinking, being treated as gift to him or loan to him is neutral for IHT (it will be either lifetime gift or debt to the estate). Could HMRC change the profit share ratio to agree with the drawings? In my mind the answer is no as tax is on profits and not on drawings.
Many thanks for the help.