Loans from EBTs and other Trusts

[Emigre]

With possible HMRC lurkers.

HMRC used posts from another CUK thread as evidence in court.

I love it when the Donkey speaks.

To be more precise "DonkeyRhubarb" was quoted in Court - hard to keep a straight face.

[DonkeyRhubarb]

I love it when the Donkey speaks.

To be more precise "DonkeyRhubarb" was quoted in Court - hard to keep a straight face.

Even better, HMRC's barrister quoted postings by a user called "bollox" but just said "another person said this".

[VictorValiant]

Interesting Development

Speaking "off the record" recently with someone who works for HMRC it appears that one avenue of future investigation that is currently being looked into for users of various schemes of this nature is to see how Inheritance Tax can be used as a means of "clawing back" so-called "ill-gotten" gains. I ca only assume that this will complicate what is already acknowledged and reconised as an overly-complicated tax system: full stop.

[Emigre]

Speaking "off the record" recently with someone who works for HMRC it appears that one avenue of future investigation that is currently being looked into for users of various schemes of this nature is to see how Inheritance Tax can be used as a means of "clawing back" so-called "ill-gotten" gains. I ca only assume that this will complicate what is already acknowledged and reconised as an overly-complicated tax system: full stop.

I assume it was the HMRC bod that was speaking "off the record".

As things stand, anyone with a loan ought to be able to offset the value of the loan against their estate. Of course, if laws were passed to prevent that offset, then if the benefits of the arrangement had been saved rather than consumed there might be some uplift in your net assets on death, but those could be mitigated using conventional methods.

One would like to think that death is a long way off! BTW, I have not tested the offset of the loan against my estate into practice...at the last count I was still alive.

[JimBobTwoTeeth]

Professional & Forum Advice

Hi,

Very useful thread. I would like to seek professional advice:

1) To deal with the loans accrued through these schemes (perhaps write them off etc)
2) To deal with a COP8 notice from HMRC

Would you know any accountants and/or tax lawyers that are familair with these schemes? I would like to have my options spelled out for me precisely by a professional.

Also,

Has anyone successfully written off loans and thus removed themselves from long term worry (yes I know its will be costly!)?

Does anyone know if once the loans have been written off a person could still be subject to financial penalty from HMRC via a parallel running investigation?

Thanks In Advance

[dezze]

Hi,

Very useful thread. I would like to seek professional advice:

1) To deal with the loans accrued through these schemes (perhaps write them off etc)
2) To deal with a COP8 notice from HMRC

Would you know any accountants and/or tax lawyers that are familair with these schemes? I would like to have my options spelled out for me precisely by a professional.

Also,

Has anyone successfully written off loans and thus removed themselves from long term worry (yes I know its will be costly!)?

Does anyone know if once the loans have been written off a person could still be subject to financial penalty from HMRC via a parallel running investigation?

Thanks In Advance

Do you mean 'written off' as in you don't pay anything, or do you mean pay back the loan?

[JimBobTwoTeeth]

Do you mean 'written off' as in you don't pay anything, or do you mean pay back the loan?

I mean written off. This triggers a taxable event. There are other threads on here about this and numerous suggestions to do so however there is no clear advice of how to proceed.

I have asked my provider and they are willing and have their view but I would like to consult either:

1) Someone who has done it
or
2) A professional accountant

Any recommendations anyone??

[JimBobTwoTeeth]

ps - the provider advises that I would have to pay tax only on the interest that was due on the loans.

Loan Value * Interest Rate * Tax Rate

I have seen something similar in the forums though I have yet to verify this through any other source.

[Emigre]

ps - the provider advises that I would have to pay tax only on the interest that was due on the loans.

Loan Value * Interest Rate * Tax Rate

I have seen something similar in the forums though I have yet to verify this through any other source.

Please do not mistake the following comments for professional advice, they are not. They represent my understanding and may be right or wrong.

Firstly, the question about whether you are due to pay tax on interest is not as simple as the formula above. You need to look at your relationship to the loan provider. Were you employed by a business that made payments into an EBT? If so, then you should be taxed on the benefit of that loan. The benefit would be the outstanding balance times the HMRC interest rate (not sure what it is just now) at your marginal rate (in essence as above). If you pay any rate of interest, or interest is accrued, on the loan then that can be deducted from the BIK calculation.

However, if you were self-employed and a business that you may or may not have contracted with makes a payment to a trust that loans you some money it is not a BIK as described above. It is a loan from an independent party. That means that it is not a benefit in kind and is not taxable.

That addresses the interest issues. My next question is why do you want to unwind the loans or have them written off? Such action would trigger an income event which could all fall to be taxable in a single year. If you are serious about that, I would leave it till next tax year with a lower top rate band.

As things stand, it is my understanding that by leaving the loans they are potentially available for offset against your estate in any probate calculations.

[rufusTfirefly]

I have received a Tax re-assessment from HMRC for the year 2008/2009 made under the provisions of Section 29 Taxes Management Act 1970.
During that particular year I was on an EBT scheme whuch I believe was a legitimate arrangement.
I was wondering how I stand regarding this demand from HMRC.
Thanks in advance for any help/advice.