TiS and commonly controlled companies

Is a purchase of shares by a commonly controlled entity caught by TiS and if so how is it taxed?

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A couple own two companies T and I

Company T is a trading company owned with A and B shares. The DLA is in credit and the company is profitable.

Company I is an investment holding company. Profitable and some reserves.

Previously T had lent money to I which had been written off. Tax neutral due to common ownership. This was a tidying exercise a number of years ago. Another intercompany balance now exists, with T lending money to I.

The couple would like to continue to purchase property in company I, primarily with cash lent from company T. They are happy to have interest applied and charges in place by company T. The bank are not in favour of this arrangement with a long term debtor balance (which is likely to grow). Indeed, this has caused issues over the ability of T to access finance to grow the business.

If company I were to buy / acquire the B shares of company T, I had expected Transactions in Securities to be relevant and the value of the B shares to be taxed as income / as a distribution. Or, if it is caught, is the transaction reversed?

I've had it put to me that the couple have not gained. They still own the same assets in a different structure, but without a particular tax advantage. They are not entitled to any more than they were before. Do others agree? Apply for clearance?

Further, I assume others are uncomfortable with one company lending another commonly controlled cash each year which is then written off? My view is that the directors are not fulfilling their duty to protect the (company T) assets, if they lend them with the expectation of them being written off but again it's been put to me that HMRC would not be interested since it is tax neutral to them. Perhaps Company's Act v HMRC interest is more relevent here?

Thanks for all comments and thoughts

John

 

 

   

Replies (2)

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By Duggimon
15th Jun 2021 09:53

Would the bank be less concerned if charges were not in place? It would seem to me that if the bank loans were secured and the intercompany loan was not, there would be little for them to get antsy about?

I have clients with substantial bank loans and even more substantial long term intercompany loans who have no issues with the bank because only the bank loans are secured against the properties, and the value of the property outweighs the bank loan balance.

edit: I'm only asking this because I really don't have any answer regarding your TIS concerns!

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By Tax Dragon
15th Jun 2021 10:49

Isn't that foursquare with TiS Cleary? (Maybe threesquare. T has pumped money into I and now money in I is to be used to buy shares in T. Maybe it's not TiS... maybe it's an actual distribution?)

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