Directors loan….. Christmas creativity

[Infohunter]

Regular poster but don’t want to link this query to my general ramblings!

The festive gap with fewer distractions and demands has got my brain whirring…. Unfortunately my accountant is not back until 6th Jan, so thought I would try here

I have a ltd company (A) with no creditors with a six figure cash deposit, that I would I’m looking to extract to me as sole director and shareholder over the next couple of years, may liquidate the company and get what used to be entrepreneurs relief on it, albeit post Rachel Reeves rate….

However my wife is a director and majority shareholder (I’m the other one) of another ltd company (B) again no creditors, other than a directors loan from her of circa £75k…., no other assets, tiny bit of cash and barely trading…

Can company A buy all of my wife’s shares in company B from her, thus now owning company B, would this effectively mean it has picked up the liability for her directors loan and can now repay it to her?

At present my accountant is oblivious to company B and any opportunities it offers….

[simon_harris]

You’ve setup your wife as a director for a company she knows nothing about?

[Countdown]

Interesting question - I think maxFromage or Eric Mc are probably the best people toa dvise.

In the recesses of my memory i seem to recall companies taking over other companies in order to utilise tax losses and this seems similar.

[Infohunter]

Simon. No it’s her company B, she owns 99% of, ran her consultancy business through it for 20 years, then took a salaried job with a third party… not quite dormant company that she primarily owns that owes her money, but as it stands unlikely to ever repay…

I’m pondering paying her £75k, been married for a very long time !

Edited by Infohunter on Friday 27th December 19:24

[Infohunter]

Countdown said:

Interesting question - I think maxFromage or Eric Mc are probably the best people toa dvise.

In the recesses of my memory i seem to recall companies taking over other companies in order to utilise tax losses and this seems similar.

That was the loose logic I’m working on…

[TownIdiot]

How about this

Equalise the shareholdings in each company

A lends B enough to repay director loan


Let a bit of time pass.

Write off the loan and there's no tax to be paid.


I think in theory that's legal but it's difficult to see any commercial justification for it (or for the purchase) so it may fall foul that way.

[simon_harris]

Infohunter said:

Simon. No it’s her company B, she owns 99% of, ran her consultancy business through it for 20 years, then took a salaried job with a third party… not quite dormant company that she primarily owns that owes her money, but as it stands unlikely to ever repay…

I’m pondering paying her £75k, been married for a very long time !

Edited by Infohunter on Friday 27th December 19:24

I missed the word accountant in your final sentence! Apologies for the confusion

[Countdown]

Is the only liability on the Balance Sheet the £75k directors loan? Does that mean the P&L account shows retained losses of £75k?

[MaxFromage]

Countdown said:

Is the only liability on the Balance Sheet the £75k directors loan? Does that mean the P&L account shows retained losses of £75k?

Based on the explanation, it would appear to be that way.

There doesn't appear to be any commercial sense in 'buying' the company as it appears insolvent/effectively non-trading. It would have to be paid to take it on unless there's some other reason. Probably a non-starter.

Sometimes loans can be made between companies, but here it appears the OP's company would be lending money to an insolvent connected company. This would appear to fail as it wouldn't be commercial or in the best interests of the company. Could interest be paid? And the director wouldn't be acting in the best interests of the company? Very likely a non-starter.

There is the possibility of the wife's company doing work for the OP's company to utilise the losses and transfer monies tax free to his wife, but the wife's company must be doing something broadly similar to the trade which created the losses to be able to use them.

[MaxFromage]

TownIdiot said:

How about this

Equalise the shareholdings in each company

A lends B enough to repay director loan


Let a bit of time pass.

Write off the loan and there's no tax to be paid.


I think in theory that's legal but it's difficult to see any commercial justification for it (or for the purchase) so it may fall foul that way.

You're correct, it would fail on the commercial basis/director's duties.

[Countdown]

MaxFromage said:

Based on the explanation, it would appear to be that way.

There doesn't appear to be any commercial sense in 'buying' the company as it appears insolvent/effectively non-trading. It would have to be paid to take it on unless there's some other reason. Probably a non-starter.

I think it would allow the OP to extract £75k from his own company without having to pay tax on it.

At the moment his wife’s company has zero net sssets (i assume- £75k losses b/fwd offset by £75k Directors Loan). The OPs introduction of £75k capital (either as a loan or equity investment) would allow repayment of the Directors Loan. However it would then need to be written off.

I have had a lot of mince pies so I might be wrong 😑

[MaxFromage]

Countdown said:

I think it would allow the OP to extract £75k from his own company without having to pay tax on it.

At the moment his wife’s company has zero net sssets (i assume- £75k losses b/fwd offset by £75k Directors Loan). The OPs introduction of £75k capital (either as a loan or equity investment) would allow repayment of the Directors Loan. However it would then need to be written off.

I have had a lot of mince pies so I might be wrong ??

Sorry I meant if it doesn't make any commercial sense, then by doing so the OP as director would be breach of his duties.

[Eric Mc]

HMRC frowns on what they call "artificial constructs" which appear to have been set up purely to minimise tax liabilities.The trick with setting up any such arrangements is to be able to argue -

a) the commercial (i.e. business) logic as to why the arrangement was set up

b) making sure that such arrangements are not already blocked by existing legislation

From what the OP is suggesting, I would think that it would definitely fail regarding a) and might also fail on b).

[MrJuice]

Do people get pulled up on this?

All sorts of business plans fail. There could have been a plan to revamp the company that just failed. So what....?

Genuine question

[Eric Mc]

MrJuice said:

Do people get pulled up on this?

All sorts of business plans fail. There could have been a plan to revamp the company that just failed. So what....?

Genuine question

Simple answer is, yes they do.

It doesn't mean HMRC always wins their argument - but it is a bit of a red flag.

[MaxFromage]

MrJuice said:

Do people get pulled up on this?

All sorts of business plans fail. There could have been a plan to revamp the company that just failed. So what....?

Genuine question

That's not what is happening though. If the money was being lent to finance a revamp, then that's fine. However in this example, the cash would be coming in and then out to the shareholder/director, and has nothing to do with running a business. It's an artificial personal tax arrangement.