Capital Gains/Losses on Investment with a 3rd Party

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gnf_ireland

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I am asking this on behalf of a friend who went into an investment with someone else.

The investment was for 100k in a limited company used to buy property in the UK in 2007. Both parties put in 20k each and took out an 'deferred interest' loan of 60k in the 3rd parties sole name. They signed a piece of paper saying they were both equal partners in the investment, but don't have any emails showing dates etc. It should be noted the payment made included other money as well.

About 5 years ago, the loan matured and they started paying interest only on it. There would be a record of regular payments from my friend into the 3rd party account. 2 years ago it went to full repayments, and again shows regular payments between the two. However, everything is still in the 3rd parties name (shares, loans etc).

The company has now been liquidated, with a distribution of 20k. There is an 80k capital loss - but in the 3rd parties sole name. The 3rd party wishes to transfer 40k of the loss to my friend, as joint shareholder.

Will the Revenue allow this, or how would it be viewed by them? Is the loss purely the 3rd Parties to offset since everything is in their name?

They are working on a final settlement to close out the deal - so the capital loss is central to it. Any advice would be welcome here
 
My sense is that they should be fine, subject to tidying up the way the arrangement was documented.

The key issues are the share ownership and how the €60k was accounted for.

The share ownership piece should be straighforward enough; if a greater percentage of the shares are in the third party's name, the reality of the situation needs to be documented, i.e. that the third party was merely acting as nominee for your friend. In other words, the third party was the legal owner for (say) banking purposes, but your friend was the beneficial owner.

My other main concern is whether €100k went in as equity or €40k went in as equity (i.e. what's the quantum of the loss). How was the €60k treated? Was it a loan made into the company or was it an injection of equity?
 
As I understand it, a personal loan was taken out separate to the purchase of the shares, although the timing is aligned. The investment into the company was 100k.

Understand re held in friends name.
 
I'd say they're okay then, once they document the reality of the situation more or less as I outlined above.

If one stands back from this, all that's happening is the tax piece is mirroring the economic reality.

A front-line Revenue official might start having kittens, but common sense should break out further up the chain (as is often the case).
 
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