In this week’s Q&A, David Woolley ATT, tax adviser at Croner-i VIP Tax Team, explains the tax considerations for funding bonds when converting a loan to a company into shares under s322(4) debt to equity rules
My client is a director and the majority shareholder of a company. He made a loan to the company on which interest is due at 5% per annum but only payable when the loan is repaid.
The board of directors want to convert his loan plus accrued interest into shares. I note that the debt to equity rules of s322(4) Corporation Tax Act 2009 (CTA 2009) should apply so that there is no loan relationship charge on the company but are there any other repercussions?
The issue of shares to a director will be a reportable event under the employment related securities regime of Part 7 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
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