Tax on personal loan if buying shares in a company

Spanky_Deluxe

Hi,

A friend of mine was offered the opportunity to buy into his company but apparently to do so he's struck up an arrangement with the owner of the company whereby he loans my friend the money to buy on an interest free basis and pays him back over a certain number of years.

How is tax calculated on that loan agreement though? By the director selling 10% shares in his company, I'm assuming he'll be liable for capital gains tax on that amount at point of sale but am I right in assuming that he will not have to pay any income tax or any other kind of tax on the loan repayments from my friend? I.e. he's effectively given himself a low tax income stream?

My wife has been given the opportunity to buy a percentage of shares in a company (she's been given an EMI option too which she is taking up). We're considering whether to take the offer up to buy more shares and whether it would be worth asking for a similar interest-free loan agreement with one of the directors.

nomunnofun

The 'owner' of the company is lending money on an interest free. He receives nothing over and above the amount that he has lent and, therefore, has made no profit of any kind. No profit - no tax.

Indeed, he is losing money as a result of inflation eroding the initial loan amount.