Repay of investment

craggysgirl

Hi there,
About 12 years ago l invested a half share into a £50,000 building cost for a joint venture between my sister and myself who were business partners at the time. The partnership ceased 10 years ago, and
relations have broken down irreconcilably between us in the last 10 years but she has agreed to pay the money back.
We had no formal agreement drawn up at the time.
Will l have to pay tax on this money, as l think she will claim it as a tax deductible expense?
Thank you

Grumpy_chap

craggysgirl said:

Hi there,
About 12 years ago l invested a half share into a £50,000 building cost for a joint venture between my sister and myself who were business partners at the time. The partnership ceased 10 years ago, and
relations have broken down irreconcilably between us in the last 10 years but she has agreed to pay the money back.
We had no formal agreement drawn up at the time.
Will l have to pay tax on this money, as l think she will claim it as a tax deductible expense?
Thank you

Did you invest as "director loan" or "partner loan"?  If so, repayment of the loan is not a tax deductible business expense and you can be repaid the loan capital without incurring tax liability, though any interest paid may incur tax liability.

Did you invest through buying shares in the business?  If so, you can sell the shares to your sister and it is a personal rather than business transaction.  CGT may apply if the value of the shares increased, but it sounds like that won't be the case.

craggysgirl

Thank you for your reply.
The money was used for the materials and labour to construct the farm building. This money was from profit made from the farm while we were in business together. At this time neither of us paid an income to ourselves while we accumulated enough money to pay for it.

Grumpy_chap

craggysgirl said:

Thank you for your reply.
The money was used for the materials and labour to construct the farm building. This money was from profit made from the farm while we were in business together. At this time neither of us paid an income to ourselves while we accumulated enough money to pay for it.

So, the money is effectively "retained profits" in the business and the business will now pay that to you as salary?  If that is correct, it is now a business expense and is income (subject to taxation - income tax and NI) for you as individuals. 

If it is "retained profits" but will be paid as dividend, then not a business expense and different taxation rates for you as individuals.

The detail of how this is treated will depend on whether the business is Ltd Co or Partnership.  You may be worth taking professional advice on the tax treatment, or a.n.other may comment more fully on here.

Jeremy535897

If you had a partnership and this represents repayment of your partnership capital which you introduced, the repayment should be tax free.