I was looking at the tax position on loan relationships and the write off of debts between connected companies (ie those under common control). This is still not brilliant.
The position on the lender is clear – no tax relief is due on the write off of a debt to a connected party. The borrower’s position is not quite as clear cut – the release is not taxable if – and only if – the debt is formally released by deed or by contract. An informal release would appear to be taxable.
This is illogical and, in my opinion, not well advertised – definitely a trap for the unwary.
Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.
Date: 17th March, 2010
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