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Income Tax (Trading and Other Income) Act 2005

Section 639: Loans to participators in close companies

2450.This section serves to avoid a double taxation charge as a result of the application of Chapter 6 of Part 4 of this Act. Under that Chapter loans made by a company to a participator and then written off are treated as income net of tax at the dividend ordinary rate on UK distributions. The rule is that where a charge potentially arises under both this section and under Chapter 6 of Part 4 of this Act this section will take precedence, but if a charge under Chapter 6 of Part 4 of this Act has already been made, then the charge under this Chapter on the settlor is reduced by a corresponding amount. See section 418 of this Act (relief where borrowers liable as settlors) which rewrites section 421(3) of ICTA. The section is based on section 677 of ICTA.

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