I have a client, X, who passed away three years ago. X made a loan to company two years prior to death. The company fell on difficult times and at the date of death the company would not have been able to pay back the loan (max 25% if the company had been liquidated at the time of death).
Executors are in discussion with HMRC to agree loan value at 25% however should the fortunes of the company improve then more of the loan would be repaid (it could be ten years before any of the loan is repaid). There is however no guarantee the fortunes would improve.
The loan is to be transferred into X’s will trust and potentially out to beneficiaries.
My question is this, if the loan is agreed at 25% with HMRC but then more than 25% is repaid, would the increased amount be dated back to X’s estate with tax at 40% plus interest or would it be in essence treated as an investment and thus any increase on the loan is a capital gain? A third option may be that the additional amount is deemed to be loan interest?
I appreciate any opinions on this.
Luke Pickering
Thomas Coombs