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  1. #1

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    Default Pay off loan and invest in pension ?

    Hello there.

    I am new to the Forum, so I apologize in advance as I am sure my query has already been covered by others. But my initial search hasn’t found an answer so I thought I would ask here.

    Like many others I am now aware that my “100% HMRC compliant” scheme isn’t anything of the sort. And although the provider assures me that they are now 100% compliant we have divorced!

    I am left with a significant loan that it seems in 2019 the HMRC will want the retro tax paid upon all of the gross income, this is in addition to the lost 10% snake oil charge to the provider.

    My question is, if I repay the loan now back to the trust what happens then to the money ? I can sell an investment property, which was going to be the pension. Now if I pay that to the trust can I then withdrawal the cash from the trust and pay it into a pension scheme – tax free ? Can I leave it in the trust and let them invest it into stocks and shares ?

    My thought was when I retire I can then pay tax in ten years time at a base rate as the money drips in during retirement ?

    I am sure that this is a non starter – but I thought why not ask if you recall this being debated before.

    Thanks GC

  2. #2
    eek
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    Quote Originally Posted by Gareth Cheeseman View Post
    Hello there.

    I am new to the Forum, so I apologize in advance as I am sure my query has already been covered by others. But my initial search hasn’t found an answer so I thought I would ask here.

    Like many others I am now aware that my “100% HMRC compliant” scheme isn’t anything of the sort. And although the provider assures me that they are now 100% compliant we have divorced!

    I am left with a significant loan that it seems in 2019 the HMRC will want the retro tax paid upon all of the gross income, this is in addition to the lost 10% snake oil charge to the provider.

    My question is, if I repay the loan now back to the trust what happens then to the money ? I can sell an investment property, which was going to be the pension. Now if I pay that to the trust can I then withdrawal the cash from the trust and pay it into a pension scheme – tax free ? Can I leave it in the trust and let them invest it into stocks and shares ?

    My thought was when I retire I can then pay tax in ten years time at a base rate as the money drips in during retirement ?

    I am sure that this is a non starter – but I thought why not ask if you recall this being debated before.

    Thanks GC
    You need proper advice as any advice provided here is worth the price you pay for it (zero)...

    From memory HMRC will tax you regardless of the loan being paid but you do need to find and pay for proper advice..
    merely at clientco for the entertainment

  3. #3

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    Thank you eek.

    Yep you are totally right regarding free advice's value, in fact even paid for advice seems sometimes shaky in this what is a loan environment.

    At the moment I feel I trusted the "Accounting Professionals" with "QC opinion" and gave them 10% of my income for worthless advice. ( I acknowledge that maybe goal posts have changed so that is perhaps unfair commentary, but that's what I feel. )

    I guess I am just going to have to bite the bullet and go along with the HMRC and follow what they tell me to do. I'm sure they have closed every loop hole such as just sending the paid off money to a pension scheme to be taxed when drawn upon.

    Thanks for replying. Appreciate it.

    GC

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    eek
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    Quote Originally Posted by Gareth Cheeseman View Post
    Thank you eek.

    Yep you are totally right regarding free advice's value, in fact even paid for advice seems sometimes shaky in this what is a loan environment.

    At the moment I feel I trusted the "Accounting Professionals" with "QC opinion" and gave them 10% of my income for worthless advice. ( I acknowledge that maybe goal posts have changed so that is perhaps unfair commentary, but that's what I feel. )

    I guess I am just going to have to bite the bullet and go along with the HMRC and follow what they tell me to do. I'm sure they have closed every loop hole such as just sending the paid off money to a pension scheme to be taxed when drawn upon.

    Thanks for replying. Appreciate it.

    GC
    I'm not involved in these schemes but I really wouldn't put that money anywhere near a pension - that would give HMRC another thing to look at (especially as recently there have been a number of pension based schemes) - equally I wouldn't be rushing to pay off the loan....

    You do need advice as to how to deal with your current situation. WTT and Big group seem to be just about the only people focussing on contractors so I suspect they are a good place to start - yes it will cost money but it may stop you doing something stupid that may cost you more...
    merely at clientco for the entertainment

  5. #5

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    A payment from a trust may well be a taxable event itself. A distribution from a trust normally is.

    If your loan was from a company, then why would they give you the money back?

    In any event a repayment of the loan now, followed by a return of the funds would not enable you to escape the 2019 charge as presently written.

    You might therefore end up paying tax on the distribution, plus be reliant upon a rather inadequate exemption in the 2019 rules, not to tax you again.

    A repayment now and a refund post 2019 would risk the post 2019 event being within Part 7A ITEPA and taxable.

    Pension contributions are tax relievable up to a couple of limits. One is annual contribution and I think you can roll forward 3(?) years allowance. The other is a lifetime allowance which is presently £1m in pension pot value (including investment returns) and exceeding that will bring a tax charge. You need to take some advice on that.

    I'm also not entirely clear that pension contributions can be set against all income. If the distribution from the trust is not one such, then there is no advantage. Again you need to take some advice.

    The worrying part though is avoiding double tax on getting the loan repayment back.

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    Default Repay Loan and then draw down fund over number of years

    Cash is needed to repay loan in 2019 to avoid tax/nic/ interest. Trust schemes may not permit pension payments.

    My (EBTrust) Loan was taken in 2006 so vast interest if repay before 2019. By then, I will no longer pay NIC(ee's) as past retirement age.

    If I repay loan in 2019 to Trustees will monies be safe, and also enable a gradual drawdown (presumably tax/nic but at lower amounts as now basic rate taxpayer)? Will this avoid an interest charge?

    Trustees were part of original 'advice' to set up EBT so I am wary of them.

  7. #7
    eek
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    Quote Originally Posted by lennie small View Post
    Cash is needed to repay loan in 2019 to avoid tax/nic/ interest. Trust schemes may not permit pension payments.

    My (EBTrust) Loan was taken in 2006 so vast interest if repay before 2019. By then, I will no longer pay NIC(ee's) as past retirement age.

    If I repay loan in 2019 to Trustees will monies be safe, and also enable a gradual drawdown (presumably tax/nic but at lower amounts as now basic rate taxpayer)? Will this avoid an interest charge?

    Trustees were part of original 'advice' to set up EBT so I am wary of them.
    Do you really think if you were to repay the money they would give it back to you?

    Equally do you think repaying the loan be enough to get HMRC off your back. I suspect if you were to repay the loan HMRC would try to tax you in 2019 on the loan and again if the trustees paid the money back to you a second time.

    You need expert specialist advice here rather than asking these questions on a public forum that we know HMRC reads...
    merely at clientco for the entertainment

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