Opinions sought over treatment of loan

accountant
accountant Registered Posts: 10 New contributor 🐸
I have a partnership client.
The husband of one of the partners has lent his wife and her business partner a sum of money. Referring to security the agreement states

"Security on this loan will be by the adoption of the fixtures & fittings. During the period of the loan, the fixtures and fittings will be transferred in the lenders name. The lender shall have full title to the fixtures & fittings on completion of an independent valuation to be paid for by the lender. Should the partners invest in additional fixtures & fittings, these will automatically be adopted by the Lender who shall have legal title over them."

Normally security for a loan would be dealt with by way of a note but I'd be interested to hear what members consider should be the correct treatment for the fixtures and fittings in this instance?

Comments

  • stefanboro
    stefanboro Registered Posts: 187 Dedicated contributor 🦉
    Leaseback

    It sounds more like a sale and leaseback agreement.

    Here's a link on the tax treatment of such an arrangement:

    http://www.hmrc.gov.uk/manuals/sdltmanual/sdltm16040.htm
  • accountant
    accountant Registered Posts: 10 New contributor 🐸
    Thanks for your input stefanboro. Much appreciated. Anyone else got any opinions?
  • payrollpro
    payrollpro Registered Posts: 427 Dedicated contributor 🦉
    I'm puzzled as to the need to take the fixtures and fittings into ownership during the period of the loan. Presumably this means there are no capital allowances for the borrowers during the period of the loan as they do not own them but instead such allowances become the entitlement of the lender, for a similar period.

    Does it not also constitute a "disposal" of an asset?

    I think I would have preferred to exercise rights over the assets rather than absorb them in this way.

    To me this seems to be an unnecessary over-complication.

    The key, to me, seems to be the transfer of title in the assets which suggests full ownership and it is repeated so there is very specific intent on the part of the lender and that, to me means treating each separate transaction, the lending of the money, the transfer of the assets, the assigning of new assets when acquired and then the transfer back upon final repayment of the debt as a unique transaction in its own right, otherwise it doesn't look right.
  • accountant
    accountant Registered Posts: 10 New contributor 🐸
    thanks payrollpro. I'm puzzled by why this was done as well. It sems complicated and unnecessary to me.
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