Q. Two shareholders loaned money to a close company; they are sisters of the other shareholder. In 2022, the shares owned by the two sisters were transferred to the remaining sister who is now the new shareholder with 100% of the shares. The loans that were made by those sisters when they were shareholders have now been waived.

Is there any tax charge on the company and are any reliefs available for the sisters waiving their loan?

A. Where a company’s debt is released, this produces a credit which is chargeable to corporation tax as income, because all profits arising to a company from its loan relationships are ordinarily chargeable to tax.

This will be in line with the amount recognised for accounting purposes per s307 Corporation Tax Act (CTA 2009). The credit will be taxable unless it falls within one of the exemptions in Cs322 CTA 2009.