A client I'm working with is dealing with something that is a little out my league. Any help would be apreciated.
There are 2 companies, A and B Ltd. They are connected parties for tax purposes.
A ltd is a trading company, for tax purposes.
B ltd is a property investment company. An 'investment company' for tax purposes.
A ltd has loaned B ltd in excess of 1m. B ltd has used these funds to purchase property investments.
My client is potenitally looking to transfer shares in the future and my thoughts are, given that the inter-company loan is quite large, this could bring the trading company into 'investment company' territory for tax purposes, which would limit their ability to obtain the various reliefs when transfering shares.
I've done some digging and due to various reasons, it is looking unlikley that B ltd will be able to repay the inter-company loan in reality, which means it could be impaired.
SO MY QUESTION(S):
1. Do you 'need' a specific reason under FRS102 (such as impairment etc) to release an inter-company loan? Or can company A simply release it just because they want to given the strategic direction of the group? If it was released simply because they want to, would HMRC take issue with this given the situation with the potential investment status?
2. I know release of inter-company loans does not lead to an income or expense in either company for tax purposes - aside from this are there any other considerations I should be aware of tax-wise? Such as issues with trading/investment statuses?
Thank you in advance to anyone that can help.