Techi Tax Question - Loan waivers and loan relationship law
Discussion
Hi, and apologies in advance for the long post. If there are any Loan Relationship experts out there, please help!
I have company A, B and C.
Companies B and C have historical inter-group balances owing to Company A - these relate to trade debts and servicing fees and have effectively been rolled up into loans.
These balances will never be paid, and the amounts have been wirtten down to £nil in A's accounts (still held at full values in B & C).
As they originally arose due to trading transactions, would an orthodox waiver create a tax liability? I know s.94 of ICTA1988 states that where deduction was taken for debts, the release will be treated as a taxable receipt, but do Loan Relationship rules over-ride this? As far as I know the write-downs in A did not create deductible losses.
The other possible means of waiving the loans is by A selling/re-assigning the loans to B & C, who could then agree to contra/off-set the amounts. Would this create a taxable credit?
Any other ideas how this loan waiver could be performed with minimal tax implications?
Thanks to anyone who has not fallen asleep...
I have company A, B and C.
Companies B and C have historical inter-group balances owing to Company A - these relate to trade debts and servicing fees and have effectively been rolled up into loans.
These balances will never be paid, and the amounts have been wirtten down to £nil in A's accounts (still held at full values in B & C).
As they originally arose due to trading transactions, would an orthodox waiver create a tax liability? I know s.94 of ICTA1988 states that where deduction was taken for debts, the release will be treated as a taxable receipt, but do Loan Relationship rules over-ride this? As far as I know the write-downs in A did not create deductible losses.
The other possible means of waiving the loans is by A selling/re-assigning the loans to B & C, who could then agree to contra/off-set the amounts. Would this create a taxable credit?
Any other ideas how this loan waiver could be performed with minimal tax implications?
Thanks to anyone who has not fallen asleep...
I'm no expert in this field but there might be some scope for writing the loans off with no tax implications IF THE COMPANIES ARE PART OF A TAX GROUP.
In other words, the net effect of the write offs is no income and/or no expenditure when viewed across the whole group.
As always, what type of information has your accountant given you on this?
In other words, the net effect of the write offs is no income and/or no expenditure when viewed across the whole group.
As always, what type of information has your accountant given you on this?
Eric Mc said:
I'm no expert in this field but there might be some scope for writing the loans off with no tax implications IF THE COMPANIES ARE PART OF A TAX GROUP.
In other words, the net effect of the write offs is no income and/or no expenditure when viewed across the whole group.
As always, what type of information has your accountant given you on this?
Hi Eric - I am the accountant! And also no expert in this field. In other words, the net effect of the write offs is no income and/or no expenditure when viewed across the whole group.
As always, what type of information has your accountant given you on this?
From what I have read, you might be right. The difficulty comes in proving they are 'connected' parties - if they are then no deduction is allowed for the original write-downs in A but no tax is due on the credit shown in B & C on the waiving.
Back to the books!
Sorry I cannot help further at the moment but you need to look at FA 1996-s80 onwards.
I cannot recall whether you have to use fair value or amortised accounting for beneficial treatment, but the basic premise is that a company is taxed on the debits and credits it shows in its accounts.
The waiving company may be able to obtain a tax deduction but you need to consider whether any anti avoidance provisions apply to disallow any such deduction.
The waiver should create a credit in the loan recipient company which may be taxable.
I cannot recall whether you have to use fair value or amortised accounting for beneficial treatment, but the basic premise is that a company is taxed on the debits and credits it shows in its accounts.
The waiving company may be able to obtain a tax deduction but you need to consider whether any anti avoidance provisions apply to disallow any such deduction.
The waiver should create a credit in the loan recipient company which may be taxable.
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