One of the consequences of the property bubble and subsequent collapse in 2010 was that a significant number of borrowers found themselves in negative equity. Liquidity issues followed due to the drying up of bank credit and this gave rise to forced disposals of assets.
A number of financial institutions have come to the realisation that the residual debt after the disposal of the assets is unlikely to ever be repaid and have released the borrower from this debt. In some instances, the borrowers have obtained a debt-release through the courts via a bankruptcy or personal insolvency arrangement.
Typical Problems that we come across
Usually tax is the last thing on the mind of an over-borrowed debtor looking to secure a write-off of bank debt. However unless the borrower is aware of the tax consequences of debt release, tax problems can crowd-out much of the benefit of the write-off.
How We Can Help
The tax rules for debt-release are complex and vary according to whether the borrower is an investor, an unincorporated developer or a corporate. Each case has its own rules and each set of rules produces a separate outcome for the borrower concerned, some more adverse than others.
We will analyse the circumstances of the borrower and advise on the likely tax consequence of debt-release. We prefer to do this before the release is granted so as to give clients maximum negotiating flexibility.