O/T Tax Advice Please?

[RichB]

OK Chaps and chapesses,

You may remember a couple of years ago Scottish Provident demtualised and transferred it's business to Abbey National. I had an endowmnent with Scot's Prov' and as a result got compensation which I took in the form of a "loan note" as I did not need the cash at the time. I am able to redeem amounts of this loan bi-annually but want to minimise any tax liability.

If I were to redeem, say £3000 from Abbey National would this be considered income or capital gains, and if CG (which is what Abbey Nat are saying) then is there an exempt amount?

Cheers Rich...

p.s. I'll owe you a beer for the right advice!

[Don]

I think you can get about 7K per year of Capital Gain tax free. So £3K should be tax free, basically. Check with your tax adviser but I'd say it should work.

[donatien]

£7,500 tax free in 2001-2002 and £7,700 in 2002-2003

[RichB]

Thanks chaps, and does the money from redeeming a "Loan Note" count as a Capital Gain or Income? Rich...

[dazren]

Capital Gain. Although your indexation/tapering stops at the date you receive the loan note, not the date you cash it in. Effectively they are a tool for deferring the capital gain until a suitable time when you can minimise your CGT due.

DAZ

[RichB]

Sorry to be thick Dazren, indexation tapering? Rich...

[dazren]

Indexation is what we used to have with shares/assets. It allowed roughly the value of inflation to be added to the original cost of an asset over time to give you an indexed cost that the taxman would treat as your cost when assessing if CGT were due (effectively he would be taxing the "real" gain and not the "inflationary" gain in value).

Gordon "meddling b'stard" Brown cancelled this a few years ago and brought in tapering relief where in simple terms the longer you held an asset, you paid a reducing rate of tax on any taxable gain.

I'm not a tax expert or licensed in giving financial advise, although my own advisors have advised when possible to realise enough gains to make full use of my annual tax free CGT allowance. Your own advisors may or may not advise you to do likewise.

cheers

DAZ

[regmolehusband]

Although your indexation/tapering stops at the date you receive the loan note, not the date you cash it in.

I've had serious (expensive) advice from two accountants regarding business asset taper relief on loan notes and I'm 100% confident that the tapering continues until you partly or wholly redeem it. Otherwise what's the point of deferring the capital gains tax if there's no future benefit. You might as well get your hands on the cash and put it somewhere more useful, if there is anywhere nowadays thanks to Bliar/Brown.

[dazren]

Clearly RichB needs to take professional advice.

I don't know if loan notes derived from a sale of business assets are treated differently than for example loan notes derived from shares when a Plc was taken over, which is where I received paid for professional advice. I know the tapering treatment on these two classes of disposals are different.

As always folks, do your own research.

DAZ

Edited to say: The benefit of loan notes in personal taxation is the ability to defer realising the profit and so moving the profit into a later tax year where for example an individual hasn't used their full tax free CGT allowance.

>> Edited by dazren on Wednesday 5th March 14:46

[RichB]

Thanks for all the help, ironically I have a friend who is a professional (well he gets paid for it) Tax Advisor He is one of the guys I share my glider with (the other is a solicitor/circuit judge so he comes in useful as well), unfortunatly they are away flying this week (or drinking beer judging by the weather!) so I was looking for some quick advice here. Thanks I will "consult" him next weekend. Rich...