A company has a sole director/shareholder as the only creditor. It is in a small net liability position of about £2,000 as a result of outstanding loans from the director. There are a few assets (equipment and cash), which will settle most of the loan but leave a small director’s loan account balance unpaid. Can the director waive part of his loan to make the company solvent? Would this create taxable income? 

Arthur Weller replies:  

The individual is perfectly entitled to waive all or part of the loan. It will not create any tax liability for him. For inheritance tax purposes, a transfer to a company is not a potentially exempt transfer, but rather a chargeable lifetime transfer. However, in this scenario there is no concern, taking into account the amount involved and the fact that he is the sole shareholder.