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Where Taxpayers and Advisers Meet

company loan to directors

paul666
Posts:2
Joined:Mon Nov 30, 2009 3:52 pm
company loan to directors

Postby paul666 » Mon Nov 30, 2009 4:07 pm

Hi there,

Could anybody please give me their views on the following.

A company is to lend £2.4 million to a director for 20 years fixed and interest at the current HMRC official rate, again fixed which at this year is 4.75.

In view of section 177 17.19 may we assume that no benefit in kind would arise and that no tax would be assessed on the company under section 419.

The loan would be interest only and the full amount repayable at the termination of the agreement in 20 years.

I would be grateful for any feedback.

Many thanks.

PW

Taxbar
Posts:1187
Joined:Wed Aug 06, 2008 2:19 pm

Re: company loan to directors

Postby Taxbar » Tue Dec 01, 2009 5:20 pm

Dear Paul,

the loan will be within section 419(1) ICTA 1988. The only way to avoid this is if the Company is a money lending business and the loan is "in the ordinary course of a business carried on by it which includes the lending of money".
See Brennan v Denby Investment Co Ltd (2001) as to what constitutes a money lending business.

Assuming it does not then the £2.4 million will be subject to 25% of that sum being paid to HMRC by the Company until repayment.
There may well be a benefit in kind charge, if the terms of the loan are not correctly and precisely drawn, so they cannot be varied in anyway!

There are better ways of structuring such a loan and may involve the more precise tax palnning, as otherwise the Company is going to end up paying £600k to HMRC!

If this is planning driven by avoiding the 50% income tax hike, there are other avenues to look at!

Daniel Feingold
Senior Partner
STTP
info@stratax.co.uk

maths
Posts:8230
Joined:Wed Aug 06, 2008 3:25 pm

Re: company loan to directors

Postby maths » Tue Dec 01, 2009 6:01 pm

Presumably the company is "close" ?

paul666
Posts:2
Joined:Mon Nov 30, 2009 3:52 pm

Re: company loan to directors

Postby paul666 » Tue Dec 01, 2009 6:48 pm

Presumably the company is "close" ?
yes it is

maths
Posts:8230
Joined:Wed Aug 06, 2008 3:25 pm

Re: company loan to directors

Postby maths » Tue Dec 01, 2009 7:10 pm

Bummer !!


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