Settlement Opportunity

[AlCapone]

I do though suggest that if you are interested in the settlement opportunity, you ask about and get comfort from HMRC that the situation above does not create liabilities in the future.

I assume if I did settle HMRC can only give me assurances about future tax liabilities, not whether or not I am still liable to repay any so called loans? So in layman’s terms is it unlikely that these schemes will able to extract the loan payments from us?

[Rob79]

I assume if I did settle HMRC can only give me assurances about future tax liabilities, not whether or not I am still liable to repay any so called loans? So in layman’s terms is it unlikely that these schemes will able to extract the loan payments from us?

Correct. HMRC will be able to give you an indication of the taxation position and will not comment upon the legal position.

However it's worth running various scenarios past HMRC in a discussion on settlement so as to get their view. As that will be tax possibly due in the future, you will not get a guaranteed position, just a "this is our present view and it may change if we have more information or the law changes". That is about as good as it gets.

As to whether the "schemes" can extract the loans from you - I don't know. You'd need to examine the details.

[Rob79]

The loans are issued by a trust which has received monies from your employer. The trust is setup for the benefit of the employee, therefore it should not be in the benefit of the employee for the trust to recall the loan.

Your employer should not be able to ask the trust to recall the loans, or at least that request should be ignored. Monies in the trust are for the employees.

BUT the big question is what happens if the trust goes bust ?? Administrators come in, see a loan book and that would be the first thing to be called in.

If nothing was done about the loan and the time comes when the employee is entitled to benefit, would the trustee not be obliged to cash up the loan?

Perhaps the trustee would just write the loan off? That would be a transfer of value to the beneficiary and I'd need to think about whether that is a taxable event.

I would also not be so sure about whether the employer should not be able to do anything.

I would probably agree that the trustee, so long as he is operating according to the trust deed, could ignore pretty much anything the settlor wants or prefers.

These trusts are probably cash light? They will inevitably have some costs (filing returns etc). If the original trustee has been paid in advance for say 20 years worth of fees but has since gone bust, the trust probably still needs to file etc and therefore find the means to pay for that.

If a trust is insolvent I think the position gets to be very messy. An application can be made for the trust to be dissolved. That may require either a recovery of the loan and a settling of outstanding charges before the balance goes to the beneficiary. A distribution to a UK taxpayer from a foreign trust may well be taxable.

HMM. One to ponder over the weekend

[AlCapone]

If a trust is insolvent I think the position gets to be very messy. An application can be made for the trust to be dissolved. That may require either a recovery of the loan and a settling of outstanding charges before the balance goes to the beneficiary. A distribution to a UK taxpayer from a foreign trust may well be taxable.

HMM. One to ponder over the weekend

Would you be able to simplfy the answer above? Perhaps with an example please?

[Rob79]

Would you be able to simplfy the answer above? Perhaps with an example please?

Bear in mind I'm guessing and the rules in the jurisdiction in which the trust resides may be different.

Let's say the trust has loaned you 100.

Back in the day, the fees you paid went to Company A who promised to meet the annual admin bills of 3 for a period of say 15 years.

Company A is bust.

The trust has to file a return at a cost of 3.

The trust has no cash.

The local authority/Court puts the trust into administration.

The administrator needs 3 to pay the filing fee, plus perhaps 5 for his own costs.

The only asset is the loan, which is called in.

You pay 100 loan repayment.

Administrator keeps 8 and pays you 92.

The 92 is a distribution to a beneficiary and as no UK tax has been paid on that amount BY THE TRUST, you may be liable to tax on it.

Tax would be around 40/45?

It's that tax bill that you need to discuss with HMRC in any settlement.

[AlCapone]

Bear in mind I'm guessing and the rules in the jurisdiction in which the trust resides may be different.

Let's say the trust has loaned you 100.

Back in the day, the fees you paid went to Company A who promised to meet the annual admin bills of 3 for a period of say 15 years.

Company A is bust.

The trust has to file a return at a cost of 3.

The trust has no cash.

The local authority/Court puts the trust into administration.

The administrator needs 3 to pay the filing fee, plus perhaps 5 for his own costs.

The only asset is the loan, which is called in.

You pay 100 loan repayment.

Administrator keeps 8 and pays you 92.

The 92 is a distribution to a beneficiary and as no UK tax has been paid on that amount BY THE TRUST, you may be liable to tax on it.

Tax would be around 40/45?

It's that tax bill that you need to discuss with HMRC in any settlement.

ok thank you I think I understand. So it's not as if I have to pay back 100% of the loan (well I do initially but the net result is I don't). If that's the case I guess it's not a great situation but we're not talking bankruptcy at least.

[TheDandy]

ok thank you I think I understand. So it's not as if I have to pay back 100% of the loan (well I do initially but the net result is I don't). If that's the case I guess it's not a great situation but we're not talking bankruptcy at least.

Why not just contact the trustees and throw them some cash to keep going for a hundred years.........

[Rob79]

Why not just contact the trustees and throw them some cash to keep going for a hundred years.........

Because the trust deed will have a sunsetter in it, i.e. an end date. It will then say what should happen.

Also whilst a beneficiary can (probably) pay money into the trust, there will be implications.

Also the trustee may have been the promoter who has now disappeared.

[TheDandy]

Because the trust deed will have a sunsetter in it, i.e. an end date. It will then say what should happen.

Also whilst a beneficiary can (probably) pay money into the trust, there will be implications.

Also the trustee may have been the promoter who has now disappeared.

Sorry I was being flippant which is not really helpful, and doesn't come across as twisted humour. I just think people spend significant amounts of time running through numerous scenarios on here and it doesn't really help anyone. They need to get, and pay for (unfortunately) proper legal advice. And they should equally be careful about what they write in these forums.

[AlCapone]

Sorry I was being flippant which is not really helpful, and doesn't come across as twisted humour. I just think people spend significant amounts of time running through numerous scenarios on here and it doesn't really help anyone. They need to get, and pay for (unfortunately) proper legal advice. And they should equally be careful about what they write in these forums.

sorry thought that was the idea of forums - for every day contractors to discuss issues with people in a similar situation to themselves. If the posts bother you don't read them.