Readers’ forum: Can intercompany loans be tax neutral?

We have a successful client trading through a limited company with several staff. The company has managed to build up cash savings of £750 000 on which negligible interest is being earned. There are negligible other fixed assets or working capital.

The two directors who are both in their 40s now wish to build up a property portfolio in the company. I have explained the issue with tainting business asset disposal relief. A proposed solution is to set up a separate company owned by the two directors personally. The cash will be transferred to the new company by way of intercompany loan which will then be written off under the ‘connected’ provisions of the loan relationship rules so that there will be neither a tax credit or debit in each company.

Readers’ views would be appreciated as to whether the write off of the intercompany loans would be...