Thanks DJKL, I agree with you, I cannot see any new investor wanting to put money up without inputting management. However the client has been persuaded by the advisers that this is a possibility.
I just deal with the tax and books, hence my query regarding how to deal with the invoice.
The reference to RKW was very helpful as it confirms that there are no tax issues arising. That case also refers to Whittaker v Kers which established that there is no debt until the call is made. I also found a useful article from Felicity Cullen Taxbar.com whose analysis of the Revenue's arguments for the old Section 419 to apply would, in her opinion, fail because of Whittaker v Kers.
Thanks also to Steve Kesby. The only point here is that I understood that private companies do not have to receive the whole of the premium on allotment, I thought that this requirement only applied to public companies. (Section 586 Companies Act 2006).
My understanding is that Section 3A (1)(c) IHTA 1984 limits a PET to being one which is a gift to another individual, a gift into an old A & M Trust (now defunct of course) or a Disabled Trust.
The transfer of value by the director giving up his entitlement to the loan repayment is not to any of these classes but to the company, it enhances the value of the company shares.
There may be some relief by virtue of Section 3A (2)(b) where another individual's property is increased in value but this does not necessarily mean that the whole of the transfer value is covered. The other individual(s) may have minority interests which would not increase in value by the whole of the £ 100k.
If not a PET it is an immediately chargeable transfer at the (currently) 20% lifetime rate with a potential increase to 40% on a death within 7 years. Subject of course to other exemptions and allowances.
Watch out for IHT! If there are other shareholders involved, you also need to be careful that this is not a transfer of value from the director/shareholder. It is not a PET so potentially immediately chargeable, subject to prior transfers.
When is the premium paid? In the case of group pension arrangements for employees the premiums are deducted from wages before being paid over to the pension provider. They are also commonly linked to a % of salary.
My understanding is that the date of payment is the date the employer pays the pension provider therefore prompt action now could enable carry back claims to be made.
The regulation require the pension provider to check the position at the year end, therefore a claim to carry back could be for the maximum possible amount and then adjusted once the actual contributions are known.
My answers
Thanks DJKL, I agree with you, I cannot see any new investor wanting to put money up without inputting management. However the client has been persuaded by the advisers that this is a possibility.
I just deal with the tax and books, hence my query regarding how to deal with the invoice.
Whittaker v Kers seems to answer the question
Thanks taxguru,
The reference to RKW was very helpful as it confirms that there are no tax issues arising. That case also refers to Whittaker v Kers which established that there is no debt until the call is made. I also found a useful article from Felicity Cullen Taxbar.com whose analysis of the Revenue's arguments for the old Section 419 to apply would, in her opinion, fail because of Whittaker v Kers.
Thanks also to Steve Kesby. The only point here is that I understood that private companies do not have to receive the whole of the premium on allotment, I thought that this requirement only applied to public companies. (Section 586 Companies Act 2006).
PET and companies
Fellowcraft
My understanding is that Section 3A (1)(c) IHTA 1984 limits a PET to being one which is a gift to another individual, a gift into an old A & M Trust (now defunct of course) or a Disabled Trust.
The transfer of value by the director giving up his entitlement to the loan repayment is not to any of these classes but to the company, it enhances the value of the company shares.
There may be some relief by virtue of Section 3A (2)(b) where another individual's property is increased in value but this does not necessarily mean that the whole of the transfer value is covered. The other individual(s) may have minority interests which would not increase in value by the whole of the £ 100k.
If not a PET it is an immediately chargeable transfer at the (currently) 20% lifetime rate with a potential increase to 40% on a death within 7 years. Subject of course to other exemptions and allowances.
Watch out for IHT!
If there are other shareholders involved, you also need to be careful that this is not a transfer of value from the director/shareholder. It is not a PET so potentially immediately chargeable, subject to prior transfers.
When is the premium paid?
In the case of group pension arrangements for employees the premiums are deducted from wages before being paid over to the pension provider. They are also commonly linked to a % of salary.
My understanding is that the date of payment is the date the employer pays the pension provider therefore prompt action now could enable carry back claims to be made.
The regulation require the pension provider to check the position at the year end, therefore a claim to carry back could be for the maximum possible amount and then adjusted once the actual contributions are known.