Peter Rayney provides a handy FAQ guide on trips and traps with loans to shareholders of closely-controlled companies.
1. What is the purpose of CTA 2010, s 455?
CTA 2010, s 455 is a key anti-avoidance weapon for owner-managed companies. Without it, owner-managers could easily sidestep a tax charge by arranging for their company to lend them funds (as opposed to paying a taxable bonus or dividend). However, CTA 2010, s 455 levies a (refundable) tax charge when a close company makes a loan to a participator (i.e., shareholder or loan creditor) or one of their associates (such as a spouse, parent, grandparent, child, grandchild, brother or sister).
Since CTA 2010, s 455(2) stipulates that the section 455 tax rate is linked to the dividend upper rate, for loans made in 2021/22 the section 455 tax charge is 32.5% on the amount of the loan or advance. However, the rate increases to 33
