Readers’ forum: Two companies

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.