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Category: UK Tax
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Can and if so how most tax efficiently can I lend money from

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Can and if so how most tax efficiently can I lend money from a limited co of which I am a 50% shareholder to a new co of which I am a 100% shareholder? Does it have to be repaid? Does interest have to be charged? Are there any time limits on repayments etc? Can repayments be deferred - my new company may not be in a position to make any repayment for 6-12 months for example. How do I account for htis in the bookkeeping for both (ltd) co's?

MamaTax :

Hi

Its MamaTax Here!

MamaTax :

Thanks for the question.

1. How most tax efficiently can I lend money from a limited co of which I am a 50% shareholder to a new co of which I am a 100% shareholder? Simple lending with a with or without interest

2. Does it have to be repaid? No- but see explanation.

3. Does interest have to be charged? ? Ideally yes- if interest needs to be deducted in the borrower company. But doesn't have to be charged.

4. Are there any time limits on repayments etc? Can repayments be deferred - my new company may not be in a position to make any repayment for 6-12 months for example. No time limits. As long as all this is in the loan agreement. The extreme would be the eventual write off of the loan both companies and you would need a formal waiver (by deed) of the debt. The intercompany loan write offs results in one company with a credit and another with a debit in the P&L. The company that has a credit (gain) is not taxable and the debit is not tax deductible in the other. If you adopt that treatment, then it seems very unlikely it will be challenged by HMRC since it is tax neutral - and it's what the legislation aims to achieve.

5. How do I account for htis in the bookkeeping for both (ltd) co's

Lending company (A) Borrowing Company (B)

In Company A's books: Debit Intercompany loan XX Credit Cash

In Company B: Debiit Cash XX Credit Intercompany Loan

Customer: replied 3 years ago.

Hi there, thank you for your answer, very informative. Just 1 final thing before I close this and leave you your (excellent!) rating.......do you know where I might be able to locate a suitable, simple loan agreement that I could use for this transaction? Thank you :)

There are various sites with proforma loan agreements. If you are stark, you can post your request for a loan agreement document to be written for you –say for £50 on sites like HERE and HERE
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