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Back to basics: Tax on capital contributions

Michael Hunter sets out some of the main issues to be thought through when advising on a capital contribution. He focuses on the risk of the contribution being taxed as trading income and on the tax treatment of the person making the contribution.

When funding a company in the UK typically one of two routes is adopted: subscribing the funds for share capital or lending the funds to the company. Each route has its advantages and disadvantages.

In some jurisdictions particularly the USA a capital contribution is often used as an alternative method of funding. However the concept is not really recognised in the UK. In effect a capital contribution is simply a gift.

So how is a capital contribution to a UK company treated for tax purposes? To a...

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