OK let's say you want to unwind your EBT
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    Default OK let's say you want to unwind your EBT

    In the run up to the 2019 retro tax, if might make sense to unwind an EBT. Let's say you own the company and have taken out 1mill. HMRC says that if you pay the loan back you are home free.
    1) Do you need to pay the stipulated loan interest rate to avoid BIK?
    2) All the time the company has been getting Corp tax deductions which HMRC didn't object to. What is HMRC's current thinking on these historic CT deductions.
    3) Can you pay the loan back to the company or does it have to go via the trustee? Assume direct.
    4) So your company which has been dormant now has 1mill and buys a franchise or does something else and then is sold and you pay entrepreneurs relief (possibly property - accepting pitfalls of ER on a prop coy).

    You get ER on the sale of the business, are you home free?

    Thoughts on a postcard, or this forum. Somehow you still need to get your 1m out.

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    My unqualified penny thoughts (truthfully no one knows how this will pan out now, not even HMRC).

    Even if you repay the loan, HMRC will still chase for the tax that was due when the money entered the trust. They'll chase the employer for the tax and if they can get away with it, transfer the tax liability to the employee.
    - Summary: Paying the loan back will not stop tax being due. Tax was due to be paid by the employer prior to the loan being issued to the employee.

    Corporation tax deductions cannot be challenged. The "money movement" is either deemed to be an outsourcing cost (tax scheme) or in HMRC land, as salary. Either way both are tax deductible.

    The loans are typically not with the company, they are with the Trust. The company cannot demand repayment of the loan. Only the Trustees of the trust can demand repayment. The trustees are legally bound to act in your best interests.

    So if it was in your best interests to repay the loan to the trust. HMRC would still come calling for the tax that was due when the money entered the trust.

    It seems to me your current options are:
    1. Sit tight. At present HMRC can no longer demand payment from employees for the tax.
    2. APN payments should be challenged on the basis it should have been the employer that paid the APN and not the employee.
    3. IF (a big if) the government passes a law allowing the tax liability to move from the employer to the employee then:
    3.1 Pay the tax to HMRC
    3.2 Send a letter to the Trustees saying it is now in your best interest to have the loans written off (they are legally obliged to do this).
    3.3 Writing the loans off creates a tax charge. Fight HMRC that double taxation applies and offset the loan write off tax charge with the tax already paid to HMRC in 3.1 above
    3.4 This seems to be the only way to walk away having paid the tax and having the loan written off.

    Imagine in a perfect world..... (to avoid the 2019 loan charge)

    If the scheme set up a new finance company with different directors and no connection to the original tax scheme.
    The finance company issued commercial loans charged at competitive interest rates and with all due legal credit checks in place.
    The individual being hounded by HMRC obtains a (lets just say) 500,000 loan at 5% interest pa over 25 tears and uses this commercial loan to repay the loan to the trust.
    The trust loan no longer exists.

    The trustee of the trust now sits with 500,000. Acting in your best interests they repay the new financial company their 500,000.
    Both loans are now written off.
    Everyone involved accepts it may take 1 month for the commercial financial loan to be written off. Incurring an interest charge of 2900 for the month.

    If only such a new commercial finance company existed... oh wait.
    Last edited by Whysoserious; 10th July 2017 at 19:43.

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    Quote Originally Posted by Whysoserious View Post
    My unqualified penny thoughts (truthfully no one knows how this will pan out now, not even HMRC).

    Even if you repay the loan, HMRC will still chase for the tax that was due when the money entered the trust. They'll chase the employer for the tax and if they can get away with it, transfer the tax liability to the employee.
    - Summary: Paying the loan back will not stop tax being due. Tax was due to be paid by the employer prior to the loan being issued to the employee.

    Corporation tax deductions cannot be challenged. The "money movement" is either deemed to be an outsourcing cost (tax scheme) or in HMRC land, as salary. Either way both are tax deductible.

    The loans are typically not with the company, they are with the Trust. The company cannot demand repayment of the loan. Only the Trustees of the trust can demand repayment. The trustees are legally bound to act in your best interests.

    So if it was in your best interests to repay the loan to the trust. HMRC would still come calling for the tax that was due when the money entered the trust.

    It seems to me your current options are:
    1. Sit tight. At present HMRC can no longer demand payment from employees for the tax.
    2. APN payments should be challenged on the basis it should have been the employer that paid the APN and not the employee.
    3. IF (a big if) the government passes a law allowing the tax liability to move from the employer to the employee then:
    3.1 Pay the tax to HMRC
    3.2 Send a letter to the Trustees saying it is now in your best interest to have the loans written off (they are legally obliged to do this).
    3.3 Writing the loans off creates a tax charge. Fight HMRC that double taxation applies and offset the loan write off tax charge with the tax already paid to HMRC in 3.1 above
    3.4 This seems to be the only way to walk away having paid the tax and having the loan written off.

    Imagine in a perfect world..... (to avoid the 2019 loan charge)

    If the scheme set up a new finance company with different directors and no connection to the original tax scheme.
    The finance company issued commercial loans charged at competitive interest rates and with all due legal credit checks in place.
    The individual being hounded by HMRC obtains a (lets just say) 500,000 loan at 5% interest pa over 25 tears and uses this commercial loan to repay the loan to the trust.
    The trust loan no longer exists.

    The trustee of the trust now sits with 500,000. Acting in your best interests they repay the new financial company their 500,000.
    Both loans are now written off.
    Everyone involved accepts it may take 1 month for the commercial financial loan to be written off. Incurring an interest charge of 2900 for the month.

    If only such a new commercial finance company existed... oh wait.

    Many thanks WHYSOSERIOUS

    I think this one is worth exploring, particularly given that the draft legislation invites taxpayers to repay loans. Let's say the loan is repaid to the trustee with an instruction to unwind the trust and repay the money back to the company. Let's also assume it is a non-DOTAS scheme so no APNs. I'm not sure what happens to company reserves if the loan is repaid and assume they increase in proportion to the loan repayment. One could make your spouse a director and shareholder and repay divs at 50k per person over 10 years for very little tax. These sounds a realistic strategy.

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    Quote Originally Posted by Not Losing Any Sleep View Post
    Let's say the loan is repaid to the trustee with an instruction to unwind the trust and repay the money back to the company.
    Let's say that the trustee was happy to do this, although in practice the trust deed will normally prevent any benefit going to the company that paid money to the trust.

    So you ask the trustee to pay the money to the company with a view to getting it out of the company in some way. This is money that was previously lent to you as part of a dodgy remuneration scheme. As such, it sound like there is a 'relevant arrangement'.

    The trust paying the cash to the company (a person chosen by you) sounds like a 'relevant step'. So PAYE/NIC is due unless there has been an earlier tax liability. But no earlier tax has been 'paid in full' and so there is not.

    So to summarise. You repay the loan. You ask the trustee to pay the cash to the company. It does. Your company has a PAYE/NIC obligation. The April 2019 loan charge will not apply and you can set up another thread about the IHT liability.

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    Quote Originally Posted by Whysoserious View Post
    The trustee of the trust now sits with 500,000. Acting in your best interests they repay the new financial company their 500,000.
    And in what parallel world is that not subject to PAYE/NIC?

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    Quote Originally Posted by Iliketax View Post
    And in what parallel world is that not subject to PAYE/NIC?
    You owe the trust money, you are simply repaying your loan. No PAYE/NI is due when you repay the loan.

    Also I think everyone has misunderstood slightly.
    There is a financial institution now willing to give out commercial loans for the repayment of these tax loans.

    In simple terms. Imagine "Halifax" gives you 500,000 loan with interest repayable over 25 years.
    You use this money to pay off your loan to the trust.
    The threat of the 2019 tax charge has now gone.

    The trust now sits with 500,000. If it gives it back to you it will be caught by the tax man.
    However if the Trustees of the trust decide it is in your best interest to use that money to pay off the "Halifax" loan directly then no tax is due.

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    Quote Originally Posted by Whysoserious View Post
    You owe the trust money, you are simply repaying your loan. No PAYE/NI is due when you repay the loan.

    Also I think everyone has misunderstood slightly.
    There is a financial institution now willing to give out commercial loans for the repayment of these tax loans.

    In simple terms. Imagine "Halifax" gives you 500,000 loan with interest repayable over 25 years.
    You use this money to pay off your loan to the trust.
    The threat of the 2019 tax charge has now gone.
    Yep.

    Quote Originally Posted by Whysoserious View Post
    The trust now sits with 500,000. If it gives it back to you it will be caught by the tax man.
    Yep.

    Quote Originally Posted by Whysoserious View Post
    However if the Trustees of the trust decide it is in your best interest to use that money to pay off the "Halifax" loan directly then no tax is due.
    Nope.

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    Quote Originally Posted by Iliketax View Post
    Yep.



    Yep.



    Nope.
    While I don't expect you to go into detail on a public forum, do you believe there is any way to get around the 2019 loan charge?

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    Quote Originally Posted by WalterWhite View Post
    While I don't expect you to go into detail on a public forum, do you believe there is any way to get around the 2019 loan charge?
    i.e. not pay the taxes due on income for which you have had the benefit? Probably not...
    Blog? What blog...?

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    Quote Originally Posted by WalterWhite View Post
    While I don't expect you to go into detail on a public forum, do you believe there is any way to get around the 2019 loan charge?
    The 2019 loan charge is designed to make you pay tax on the loans. How much tax and in what form is probably still up for debate. It's not trivial legislation, and its implementation will be difficult. Join BigGroup which is aiming for a settlement based approach.

    I wonder if HMG will ever dream up a similar wheeze with contractor Ltd's....sigh....

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