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Where Taxpayers and Advisers Meet

Debt-to-equity swap and Directors' personal CGT position

Verdon
Posts:1
Joined:Tue Apr 11, 2017 8:53 pm
Debt-to-equity swap and Directors' personal CGT position

Postby Verdon » Tue Apr 11, 2017 9:10 pm

Greetings all. Long-time reader, first-time poster here.

I need help in establishing if a course of action will lead to crystallisation of a personal CGT liability for the Directors of a company that I act for.

The company in question has an overdrawn balance sheet and the Directors are owed monies by the company which is equivalent to the deficit.
The Directors are keen to eliminate the deficit and are willing to convert the amounts owed to them to equity.

A complication arises as the directors bought this debt from the former parent company which is now in administration and paid considerably less than the full value for the debt.

I've spent some time looking at the tax position of the proposed swap and I'm fairly confident that there are no Corporation Tax implications for the company. (I'm at home now so don't have my sources to share).

What I don't have any certainty around and I'm looking for help with is in determining if a debt-to-equity swap will trigger a capital gain for the directors even though there is no cash swapping hands.

I can elaborate and expand where necessary.

Thanks in advance.

Verdon

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