Overdrawn Directors Loan Account

Trusts Discussion
1

Discussion in the office has led me to post this on here to seek opinion on a hypothetical scenario…

If a director has an overdrawn directors loan account, the amount owed is a debt in the Estate. The Executors are responsible for paying the amount owed back to the Company.

If the deceased is 100% shareholder, the amount of the loan is treated as an excepted asset for BPR purposes.

What happens if the deceased is not a shareholder? Is there an IHT advantage here and for some planning around this?

Grateful for some thoughts and commentary on this.

Clare Eve
LB Group

2

Hi Clare,

Interesting, if they are not a shareholder, say an Director, employee or family member then the loan (we assume) would be on a commercial basis, ie a loan to a company (not a Directors loan). On the death the loan would be repayable by the company and form part of the deceased estate. I don’t see any benefit? Unless I missed your point?

It ought to be noted that HMRC looks at the cash position ‘lazy cash’ of companies in respect of deceased shareholders who conveniently die with no personal assets, have considerable cash in a connected Limited company. So parking cash in Ltds is not a good estate planning strategy :0)

Richard Bishop
PFEP

3

Hi Richard

Thank you for your response. We are looking at a scenario where the director owes money back to the Company, not the other way round!

Thanks

Clare Eve
LB Group

4

As the director is not a shareholder he/she would be an ordinary employee and this would be an employee loan caught by the normal HMRC taxation of employee loans. see https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees

The outstanding loan would be a debt on the estate of the deceased ; no business relief issues as the director is an employee.

Not sure where you are going with this.

Andre Davidson
Finantium

5

Hi Clare,

If the money is owed to the Directors then it’s owed to the estate? No benefit that I can see.

Richard Bishop
PFEP