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27 September 2016
Issue: 4569 / Categories: Forum & Feedback

Correspondence from readers on topical subjects.

Loan relationships

In response to the replies to the ‘Loan relationship’ query (Taxation 15 September 2016) readers should not forget unallowable purpose and inheritance tax implications.

HMRC can take the view that the loan was not made for a commercial purpose of the company and deny relief for the debit – see the Corporate Finance Manual at CFM38120.

It is also possible that the debt waiver (which should by a formal deed) could result in inheritance tax because in effect Patrick is making a gift to Adam. HMRC explains the issue in theInheritance Tax Manual at IHTM04068 and arises from IHTA 1984 s 94 to s 102. The issue is that the waiver is a deemed transfer by Patrick. Because a deemed transfer cannot be a potentially exempt transfer it is immediately chargeable to inheritance tax.

We would suggest considering a debt to equity swap to...

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