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Readers’ forum: Two companies

11 August 2020
Issue: 4756 / Categories: Forum & Feedback
Status of loan to a connected company

My client has two completely different businesses each operated through its own company. One is successful and has cash reserves and the other needs a cash injection. It occurs to me that if one company funds the other directly it would avoid income tax charges on drawing money out and putting it in. But I am worried that a loan to a connected company might fall foul of ‘loans to participators’; would an equity investment suffer any adverse tax consequences? The client knows he may lose his money.

To complicate matters the cash-poor company was set up many years ago under the enterprise investment scheme; the original four shareholders are now two and each has a holding that is partly exempt from capital gains tax on gains.

Do Taxation readers have any comments or see any issues?

Query 19 599 – Lincoln.

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