Settlement Opportunity

[Rob79]

I received my settlement calculation today and confirm that there is IHT.

Loans (06/07) = £60,390 (not sure why as I told them £63k - maybe a timing diff.)
Income Tax = £19,383
IHT = £4,548
Interest = £4661
Total = £28592

The interest charges start from 29th Sept 2009, although I'm not sure why this is.

The initial letter arrived late July. Settlement calculation letter arrived 1st Oct, from a letter dated 25th September. Seems as though they like to work your last nerve on the matter.

I hope this provides a little clarity.

Were there any calculations backing the numbers?

For example, the IHT charge implies a chargeable transfer of £11,730. Even allowing for a c0uple of years of annual exemptions etc, I'm struggling to correlate the loan with the charge.

I don't want to pry and please feel free to ignore this request but would you mind PM'ing me and let me have a look at the calculation please?

[AlCapone]

Were there any calculations backing the numbers?

For example, the IHT charge implies a chargeable transfer of £11,730. Even allowing for a c0uple of years of annual exemptions etc, I'm struggling to correlate the loan with the charge.

I don't want to pry and please feel free to ignore this request but would you mind PM'ing me and let me have a look at the calculation please?

Rob could you explain what you mean my chargeable transfer?

[LadyPenelope]

Were there any calculations backing the numbers?

For example, the IHT charge implies a chargeable transfer of £11,730. Even allowing for a c0uple of years of annual exemptions etc, I'm struggling to correlate the loan with the charge.

I don't want to pry and please feel free to ignore this request but would you mind PM'ing me and let me have a look at the calculation please?

There was a full set of calculations. Sorry, but I'm not prepared to share them, I posted this simply to give people an idea what they're dealing with so that they can prepare their own estimates. Also, they were on A4 but should have been on A3 or two A4 pages, making them very difficult to read, i.e. the font was extremely small.

In summary though, they add the loans to your salary for the year, deduct your personal allowance and then apply the income tax bandings in force at the time to the balance. No grossing up of the loans takes place. It was roughly in line with my estimates except for the IHT.

[Rob79]

There was a full set of calculations. Sorry, but I'm not prepared to share them, I posted this simply to give people an idea what they're dealing with so that they can prepare their own estimates. Also, they were on A4 but should have been on A3 or two A4 pages, making them very difficult to read, i.e. the font was extremely small.

In summary though, they add the loans to your salary for the year, deduct your personal allowance and then apply the income tax bandings in force at the time to the balance. No grossing up of the loans takes place. It was roughly in line with my estimates except for the IHT.

Understood and thanks anyway.

It's the IHT I'm interested in. I have a theory that the HMRC basis of the IHT charge may not allow them to run the income tax charge argument. If so, HMRC may be forced to choose which one to go for.

As I said, a theory based on not much information and which may be completely wrong, but I'd like to test it.

I'm in touch with a number of other people and I'm sure the calculation will be available soon.

The interest accrual dates are interesting as well (if you're a tax nerd).

[Rob79]

Rob could you explain what you mean my chargeable transfer?

IHT is a tax based on a transfer of assets/wealth between individuals.

In very broad terms if you measure your wealth pre event and again post event, the reduction or increase in your wealth is a transfer.

Where that transfer is not exempt (annual exemptions, nil rate bands, lifetime gifts, business assets, etc etc) it becomes a chargeable (to IHT) transfer.

A trust is a separate personality for IHT purposes. A such a transfer of assets from individual to a trust is potentially chargeable.

Trusts normally will not pay IHT on receiving assets but may be subject to a charge on transfers made out of trust and/or a 10 year anniversary charge.

Some trusts (commonly a Baker Trust or one that has a fixed purpose so that the trustee has little or no discretion on distributions) are often seen as extensions of the individual who makes a transfer of assets to the trust (called the settlor). In that instance the liability for IHT may fall on the settlor.

I have not enough data to analyse HMRC's position yet but it appears that they assume a Baker trust is in point and have raised a charge. I'm interested in understanding more about that charge.

[AlCapone]

IHT is a tax based on a transfer of assets/wealth between individuals.

In very broad terms if you measure your wealth pre event and again post event, the reduction or increase in your wealth is a transfer.

Where that transfer is not exempt (annual exemptions, nil rate bands, lifetime gifts, business assets, etc etc) it becomes a chargeable (to IHT) transfer.

A trust is a separate personality for IHT purposes. A such a transfer of assets from individual to a trust is potentially chargeable.

Trusts normally will not pay IHT on receiving assets but may be subject to a charge on transfers made out of trust and/or a 10 year anniversary charge.

Some trusts (commonly a Baker Trust or one that has a fixed purpose so that the trustee has little or no discretion on distributions) are often seen as extensions of the individual who makes a transfer of assets to the trust (called the settlor). In that instance the liability for IHT may fall on the settlor.

I have not enough data to analyse HMRC's position yet but it appears that they assume a Baker trust is in point and have raised a charge. I'm interested in understanding more about that charge.

Thank you. In order for me to understand it more clearly would you mind showing how you arrived at the chargeable transfer of £11,730?

[Rob79]

Thank you. In order for me to understand it more clearly would you mind showing how you arrived at the chargeable transfer of £11,730?

IHT is charged at 40%.

The calculation is IHT of £4,548.

If that is 40% of the chargeable transfer, then the total must be £11,370

(£11,370 @ 40% = £4,548).

May have committed a typo earlier?

[AlCapone]

IHT is charged at 40%.

The calculation is IHT of £4,548.

If that is 40% of the chargeable transfer, then the total must be £11,370

(£11,370 @ 40% = £4,548).

May have committed a typo earlier?

So in ladypenolpe's case would you have expected much more IHT (£16,402.80)? My calculations:

£60,390 (loans) - £19,383 (income tax) = £41,007 (chargeable transfer)

£41,007 @ 40% = £16,402.80

[Rob79]

So in ladypenolpe's case would you have expected much more IHT (£16,402.80)? My calculations:

£60,390 (loans) - £19,383 (income tax) = £41,007 (chargeable transfer)

£41,007 @ 40% = £16,402.80

No. The income tax number is not part of the calculation.

Given Lady P's expressed wish, I'd rather not comment further for the moment.

[jbryce]

On a more general note.

• If one settles then one pays the amount + interest.
  
• If one receives an APN one pays the amount.
  
• Assuming one's scheme loses (at some point) then the interest that accrued before the APN was settled, becomes payable.

What is the position regarding fines etc. I'm unclear and HMRC are just humming and aahhhhing on that point.