Q. Can you explain what the tax advantages are of using a “loan note” to invest rather than other mechanisms please ? I heard you can make significant savings in tax ? Terry – Dublin 6
A. A loan note Terry is an extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid. Loan notes are usually provided in lieu of cash at the payee’s request. They can also help an individual investor avoid an undue tax hit resulting from a lump sum payment from a settlement or cash-out package from a company. In these cases, the individual is given a choice between cash or a loan note. When loan notes are used between businesses, the purchaser is able to act as a borrower and make payments over time, often at a minimal or “at cost” interest rate. When acting as a lender, the loan note has great tax advantages. One such example of its use is through self-administered pension schemes. Many pension fund holders have left their funds in cash earning 0.1% or nothing at all. Taking that money and lending it to a company for a short term ( up to 2 years ) could give you a return of 10% tax free per annum. While there is risk with some of these loan notes, you would need expert professional advice before embarking on this investment path. Not to be confused with EIIS schemes (Employment Investment Incentive Schemes) Email me for details.
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