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A trading company is owned 50:50 by a father and his son. Some years ago, the father loaned £200,000 to the company, but it cannot afford to repay this. The father would accept £30,000 in full settlement of the loan and for the balance to be written off, but will the loan relationship rules apply?
A Ltd has traded for 15 years is owned 50:50 by our client and his father as joint shareholders and directors and funded by a £200 000 loan from father. Trade has declined the balance sheet is in deficit and there are cumulative tax trading losses of £90 000.
The loan is unlikely to be repaid and father would accept £30 000 and write off the balance. If the loan balance is written off this would be a trading receipt and there are insufficient losses to cover it.
Father may be able to claim capital loss relief on an irrecoverable loan but the company is continuing to trade and a capital loss is unlikely to be utilised. Would this be an inheritance tax potentially exempt transfer? The loan does not qualify for business property relief but the parent’s joint estate would be covered...
Please reach out to customer services at +44 (0) 330 161 1234 or 'customer.services@lexisnexis.co.uk' for further assistance.
