If you want to help a family member whose business is going through a difficult patch, you may as well make your loan or gift tax-efficient, says Tax Tips & Advice.
Give them cash in exchange for making you a partner in their business, and you gain the right to claim tax relief on any subsequent business losses. You can then use these losses to “reduce the tax you pay on the salary or dividends you draw from your company, or on any other income for that matter”. And you can always resign from the business at a later date once you’ve recouped your money.
So say you are a company director and you give your son’s business a £20,000 cash injection in return for a 5% stake. If his business makes a loss of £25,000 next year, you can claim a loss under s.64 of the Income Taxes Act 2007 for your entire £20,000 (even with just a 5% stake) and use it to reduce the tax payable on your company salary. That could save up to £8,000 of tax (£20,000 x 40%). However, make sure you structure the partnership agreement correctly by taking professional advice.