Skip to main content

This is a new service – your feedback will help us to improve it.

Posted Fri, 26 Jan 2024 09:59:27 GMT by Knuj
Hi, I own 50% of shares in a limited company. The company has 2 shareholders - each owns 50% of the shares issued. Moreover both shareholders have lent funds to the company in equal amounts (Loans) . Over the years the company has accumulated losses. To make it clear let me use a simplified example: the Balance Sheet of the Co. is as follows: Assets : Cash 1k, Liabilities: Loans 100k, Equity 1k, Retained Earnings -100k. I want to buy out the other shareholder's Shares and Loans and recapitalize the company. The Company is clearly insolvent therefore I would pay a nominal value (say 1 pound) for the other shareholder's shares and loans. What are the tax implications for both shareholders on a personal basis? In particular, would the exiting shareholder report a Capital Loss in the Unlisted Securities section of his Self Assessment (in particular for the loss on the Loan : he lent 50k and I bought his position for a nominal value) ? Should the company in future recover financially and be in a position to repay the loans in full , would I report a Capital Gain in the Unlisted Securities section of my Self Assessment when/if the Loans are repaid in full to me? would I be correct in saying that the cost of the 100k nominal Loan allowable for capital gains calculations for me would be 50k as I originally lent 50k and then bought the other shareholder loan for 0 ? i.e. if in 5years the company repays the loans in full (100K) I will need to report a capital gain of 50k? thank you v.m.
Posted Tue, 30 Jan 2024 16:25:43 GMT by HMRC Admin 32

For the loans, please refer to:

Director's loans

For you buying out the other person, there is no capital gain or loss until you actually sell the shares or the company dissolves. For the other partner, as they are selling the shares, they would then have a gain or loss to declare.

Further guidance is at:

Tax when you sell shares

Thank you.

You must be signed in to post in this forum.