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bigduckontax, Accountant
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I am selling a company to the value of £1,000,000 which is

Customer Question

I am selling a company to the value of £1,000,000 which is the valuation cost of the land.
The directors loan account is in credit of £480,000. Once this has been re paid to the director am i correct in thinking the balance of £520,000 is chargeable to Corporation Tax.

Any advice would be appreciated.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I'm Keith and happy to help you with your question. With respect I think you are in danger of confusing two different taxes. Clearing the Director's Loan Account is tax neutral. Any interest paid on the loan is chargeable against the profits of the company.

 

Only profits made in the year are chargeable to the company through Corporation Tax. What is in the company is irrelevant in this context.

 

What will be chargeable to Capital Gains Tax will be the gain on the original price paid for the shares in the company and the amount received on the sale. That is a liability on the owner of the shares when they are sold. There is an Annual Exempt Allowance of 10K and the balance of the gain is taxed at 18% or 28% depending on the income level of the seller in the year of sale. At this point I am stuck and cannot go any further without more information, but may have resolved your difficulties.

 

Please remember that a company, indeed any asset, is only worth what a buyer is prepared to pay for it; this may well differ from the book valuation!

Customer: replied 2 years ago.

Thank you for your response i think i am slightly confused.


 


The £1,000,000 i receive will be in terms of the following:


 


A property to the value of £499,000


Bank loan repayment of £300,00.


Balancing payment of £201,000.


 


It is my understanding there will be 3% of stamp duty to be paid on the property by me.


 


Bank loan repayment will be tax free so there it would be the £201,000 which would be the capital gain, which i had hoped could be reduced by the director loan repayment.


 


 


Apologies for my lack of knowledge

Expert:  bigduckontax replied 2 years ago.
Stamp duty is your liability on acquisition and can be added to the transfer price of the landed property to reduce the capital gain at some future, indeterminate date on disposal.

If you were the director who made the loan then indeed its repayment is tax neutral as indeed will be the bank loan repayment although I am at a loss to understand why you should receive this personally rather than the bank direct. All company debts should be cleared by the company to make it 'clean' leaving only the surplus (which of course includes the property) passed to you, less the original cost of the shares as the personal liability to Capital Gains Tax (CGT). By clearing all debts owed by the company direct you make the whole situation much simpler.

I am of the opinion that in view of the sums involved here you would be wise to consult a local, trusted professional to navigate through this rather complex process and negotiate the CGT position with HMRC.
bigduckontax, Accountant
Category: Tax
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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