self assessment self employed loan

ZZaffy

Daughter is running a small business livery yard with very little profit.   I have given her a couple of loans.  Does she have to declare this on her self assessment form?  Thanks

DullGreyGuy

Are they "business" or personal? Are you charging her interest?

Jeremy535897

Most small sole traders do not prepare balance sheets, and use the short self employment form SA103S for the self assessment tax return. If this applies to your daughter, the loans themselves and any repayment thereof do not need to be declared.

If you charge interest, that interest may be an allowable business expense to be included in the figures on SA103S, but there are restrictions that limit the interest that can be claimed. If she uses the cash basis, only £500 interest a year (all loans and overdrafts) can be claimed, and if she uses the accruals basis but has an overdrawn capital account, relief may also be restricted.

If you charge interest, you will need to declare any receipt of it in your tax return, and, depending on the terms and quantum of the loans, there may be a potentially exempt transfer by you for inheritance tax purposes.

ZZaffy

It all gets too complicated.  
1)  Loans were given to daughter's livery yard with no interest and no guarantee of repayment. 
2) Daughter hired one person regularly for a few hours a week.   Also hired famers to cut hedges and deliver hay etc.
3) Daughter filed  a short form self assessment each year.
4) I too file a short form self assessment each year, so I am familiar with the task.
5) As inheritance was raised in the comment answers, I will explain. Tragic scenario.  I am elderly and decided give most of daughter's inheritance to her now whilst I am still alive. and hopefully survive 7 years.  It is in a trust, of which I really don't understand how that works.
6) But it was daughter who became ill and did not survive.
6) Trying to keep things together and  was thinking about next year's 2022 self assessment and wondered about the loan.

Jeremy535897

I am a bit confused. Your OP said your daughter is running a livery business and asked whether your daughter had to report loans on her self assessment tax return, but your last post says your daughter has sadly died. Are you asking what to report on her SA return for the year of her death? My apologies if I am misunderstanding what must have been a very traumatic experience for you.

ZZaffy

Jeremy535897 said:"

I am a bit confused. Your OP said your daughter is running a livery business and asked whether your daughter had to report loans on her self assessment tax return, but your last post says your daughter has sadly died. Are you asking what to report on her SA return for the year of her death? My apologies if I am misunderstanding what must have been a very traumatic experience for you.

Sorry Jeremy.  I thought I would keep my opening post simple.  I was just wondering about the declaration of loans and how it works.  This information is for next year when I officially take over the responsibility of filing the tax return.  My amazing daughter made sure her self assessment was filed for this year.  You raised the question of inheritance and I thought I would explain the whole story.  Again sorry to confuse you. Just wanted to keep the question simple as in "what about loans?"  I think you have answered my question "loans do not have to be declared."  Thank you very much for your attention.

Jeremy535897

I understand, and you are correct. Nothing needs to be declared on your daughter's SA return in respect of the loans. I guess the other question is what will happen to the loans. Are you writing them off? Who inherits her estate? This may ultimately affect the inheritance tax on your estate.

ZZaffy

Everything is new and raw and I am not sure what is going to happen. If it is easy to explain and understand, how will the loan affect the inheritance?  Thank you.

Jeremy535897

The loan reduces your daughter's estate. I do not know what the size of her estate is, but the minimum nil rate band she has is £325,000, so it may not matter if the loan is written off unless her estate could approach that figure (and there are other nil rate bands if that is likely). If you inherit her estate, the loan disappears. If you don't, and you write the loan off, you make a potentially exempt transfer, which could become chargeable on your death, depending on the size of your estate and your prior gifts in the last seven years. Technically, you made a potentially exempt transfer when you made the loan, as you made a loan with no interest that was not repayable on demand, but the size of the transfer depends on the size of the loan. These are issues that are only likely to be relevant when you die.