Loan Notes

[les1]

Hi guys,how do loan notes work?I have some shares to sell but i may have to pay capital gains tax and I have been told that these notes are a way of getting around this.

[dzug]

Probably no help in your case - they don't come into play if you have shares you just want to sell.

They are issued when a company is taken over - ie you have to either sell or lose your shares. Rather than take cash for them there is sometimes (not always) the option of a loan note. Effectively you lend the sale proceeds back to the company and receive them over several years, thus being able to use multiple CGT allowances.

The company doing the takeover has the advantage of not having to pay everything up front and you have the advantage of less (or no) CGT.

[les1]

Thanks Dzug,I believe thier is an interest element to the notes so how does that work?

[dzug]

The loan notes will provide for payment of interest (taxable as income) to the former shareholder on specified dates at either a fixed rate or a defined variable rate (eg 1% above base rate, or whatever)

[les1]

many thanks dzug.