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Tax implications of loan write off

Connected parties

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Scenario is as follows:

Company A is owned 100% by Mr A

Company B is owned by various parties, but Mr A Owns 35%

Company A owes company B £50k and it has been agreed by all shareholders of Company B to write off the debt. The debt is a loan and not related to any trading activities between the two entities.

The two companies are connected but not in a group, what are the tax implications of the above transaction in terms of the loan write off in each entity. Does Company A pay corp tax on the release of debt and can Company B obtain tax relief on the write off?

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By Matrix
29th Aug 2018 08:25

Why do you think they are connected?

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By atleastisoundknowledgable...
29th Aug 2018 09:03

You mean related (for accounting purposes)

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By Ruddles
29th Aug 2018 10:48

Absent further information regarding the status of each company, it is likely that A will have a taxable credit whereas B *might* have a deductible debit.

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Replying to Ruddles:
By Jigs
30th Aug 2018 08:15

Thank you, what additional information do you require? Company A is an investment company with no trading activities, Company B is a hold co of a trading group.

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Replying to Jigs:
By Ruddles
30th Aug 2018 09:26

It seems unlikely that you’d be able to successfully argue that the loan made by B was within its commercial activities. Relief is therefore likely to be denied under the unallowable purpose rule. A, unless it is in liquidation etc, would nevertheless have a taxable credit. But why can’t A pay the debt? If it has losses those may be available to shelter the credit.

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