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Wella


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Partners Loan Guarantee Insurance
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Hi all

I would appreciate any feedback, advice or opinions on the following

If a partnership is granted a loan on the condition that the partners take out a loan protection insurance policy in the event of a death of one of the partners, is that a business expense, that should be entered into the accounts?

My opinion is that, it is not, because the surviving partner would have the benefit of the payout and would effectively introduce it as capital into the accounts and then remove the loan liability. Also the death of a partner would cause the partnership to cease existing (only a two person partnership) and therefore it could not receive the benefit.

I do know that HMRC do not allow it as a deductible expense for SA purposes.

If any one has an opinion, advise, comment or can point me to an accounting standard or convention that clarifies the position I'd be most grateful

Thanks
Bill

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Shamus


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The loan was taken out for the company. The loan would not have been granted without the guarantee. My opinion is that although the remaining partner would benefit from there being reduced debt in the company upon the death of the other as the benefit is to repay the companies loan the insurance should be allowable as a business expense.

Of course, dependent upon how much this loan is for each partner should now probably look out for roller skates being left at the top of stairs and perhaps consider hiring a poison tester!

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Shaun

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Wella


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Shaun

Thanks for the quick reply

Bill

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BackOfficeGroup


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would the partner benefit or would it not be the bank who would receive the payout - I guess it all depends on the policy wording.....

P

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Shamus


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Hi Phillip,

I would assume (you might want to clarify this bit bill) that this would be a normal type of loan guarantee where the loan gets paid off on the death of one of the partners.

The company (and bank) benefits from having the debt cleared.

The remaining partner benefits from owning a larger percentage (dependent upon the partner agreement) of an entity that now has less debt.

The immediate beneficiary though would be the company making the insurance a business expense.

Think I'm reading the situation correctly anyway?

Cheers,

Shaun.

-- Edited by Shamus on Friday 15th of January 2010 04:43:42 PM

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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Wella


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Shaun & P

Yes it is a standard loan protection policy, paying the bank.

I am probably thinking about it too much (as usual)

It was just that the way I worked it in my head was that the insurance would create a gain for the survivor and is not protecting the partnership (unlike, say building insurance that protects an asset).  I was also trying to square it with why HMRC do not allow it as a deductible expense.


Bill

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