Readers' forum : Retirement plans

05 June 2018

Issue: 4650 / Categories: Forum & Feedback

Tax treatment of loan from retiring shareholder to former close company.

My client the founding director and majority shareholder of a close trading company (a property lettings agency) is approaching retirement and is in talks with the other director shareholders about his exit plan. This involves the company purchasing all of his shares and applying for capital distribution treatment and consequently a claim for entrepreneurs’ relief.

I am satisfied that the rules for such an application will be satisfied with the exception of those concerning post-sale interests. These are proving to be a problem because the director intends to loan the company £100 000 over the next two years to fund working capital. This would breach the rules that deal with the seller being connected with the company immediately after the sale (CTA 2010 s 1062).

For the sake of completeness the company has reserves of £300 000 which would be extracted through the buyback and then...

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