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Where Taxpayers and Advisers Meet

Novation of Loan

marc02
Posts: 75
Joined: Wed Apr 22, 2009 2:46 pm

Novation of Loan

Postby marc02 » Wed Sep 05, 2018 6:42 pm

I've read an article by a legal professional that discusses the following strategy; (A) Individual takes a loan from X (B) That individual uses the loan to make a director’s loan to their company (C) The loan from X is novated to the company. (D) The company repay the loan for which it is now liable by way of the novation. (E) The individual continues to have a director’s loan account from which they can withdraw funds without tax.

Accepting that under the rules of novation, the lender X must agree to the novation (ie: assignment won't work).

Any thoughts on the legalities of this please?

(NB: The article I read was a few years old!)

bd6759
Posts: 2839
Joined: Sat Feb 01, 2014 3:26 pm

Re: Novation of Loan

Postby bd6759 » Thu Sep 06, 2018 9:24 pm

Money moving in a circle. What could possibly be wrong with that?

What do you think the consequences might be of the company paying the individual's debt?

marc02
Posts: 75
Joined: Wed Apr 22, 2009 2:46 pm

Re: Novation of Loan

Postby marc02 » Sat Sep 08, 2018 11:43 am

A company paying an individuals debt would result in that individual paying income tax on that amount. That is the point of my questions because I see that HMRC treat novation to mean the company would own the debt not the individual. https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61605

bd6759
Posts: 2839
Joined: Sat Feb 01, 2014 3:26 pm

Re: Novation of Loan

Postby bd6759 » Sun Sep 09, 2018 11:58 am

Great idea. I'll no longer take a salary. Instead I'll put all my spending on my credit card. Each month I'll novate the bill to the company. That'll work, won't it....?


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