Settlement Opportunity

[Rob79]

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.

Slight correction. If you receive and pay an APN and your scheme loses, you pay interest on the tax due from the due date to settlement. The APN is regarded as a payment on account. Therefore the interest on the amount of tax liability covered by the APN arises only to the date of the APN.

Example. You receive an APN and pay £100 on 31/12/14. Some time later your case loses and your final liability is determined as being £150 and had a due date of 31/1/10.

You pay interest on £100 from 31/1/10 to 31/12/14. You pay interest on £50 from 31/1/10 to date of settlement.

Penalties. Until very recently HMRC has been relatively relaxed about such. However we're seeing evidence now of penalty questionnaires being issued.

A brief guide.

For claims made before 1/4/09, penalties start at 100% and can then be mitigated by UP TO:

20% for "helpful" disclosure
10% for voluntary disclosure
40% for co-operation
40% dependent upon seriousness of case.

(I know that's 110% but apparently HMRC apply some form of weighting - go figure)

For claims after 1/4/09 HMRC will take into account whether the "offence" arises from

innocent error (rare)
carelessness
Deliberate offences
Deliberate offences concealed.

In other words entirely subjective.

[Boobetty]

Rob, are you sure about IHT charged at 40%? My understanding is that the 40% rate only applies on death. In your lifetime you are taxed @ 20% on gifts into trusts but only where lifetime gifts are above your £325k nil rate band.

The IHT charge referred to above is (I believe) based on funds exiting the trust. Under current rules I believe these are taxed at 1% or 0.6% for every year the fund were in trust. So £63,000 x 1% x 7 years or so.

Do please correct me if I am wrong, but the above is my current understanding (and the numbers stack up).

On a related note, your comment about the apparent conflict between HMRC pursuing IHT AND income tax on the same funds intrigues me as I had reached a similar conclusion.

Would you be prepared to elaborate?

[Rob79]

Rob, are you sure about IHT charged at 40%? My understanding is that the 40% rate only applies on death. In your lifetime you are taxed @ 20% on gifts into trusts but only where lifetime gifts are above your £325k nil rate band.

The IHT charge referred to above is (I believe) based on funds exiting the trust. Under current rules I believe these are taxed at 1% or 0.6% for every year the fund were in trust. So £63,000 x 1% x 7 years or so.

Do please correct me if I am wrong, but the above is my current understanding (and the numbers stack up).

On a related note, your comment about the apparent conflict between HMRC pursuing IHT AND income tax on the same funds intrigues me as I had reached a similar conclusion.

Would you be prepared to elaborate?

Mr B, you may very well be correct on the rates. It must be 15 years since I last looked at IHT. I'll go and check.

On the apparent conflict, again I'm reluctant to elaborate until I've established the basis of the charge but I am at present unclear as to the position.

[LadyPenelope]

Mr B, you may very well be correct on the rates. It must be 15 years since I last looked at IHT. I'll go and check.

On the apparent conflict, again I'm reluctant to elaborate until I've established the basis of the charge but I am at present unclear as to the position.

OK, so I went back and looked at the dreaded calcs. It's the income tax and interest where they provide a full breakdown.

There is basically no information on how they arrived at the IHT figure. The letter says:

"The arrangements which were set up for you involved the use of a relevant property trust which was situated outside the United Kingdom. Three of the main Inheritance Tax charges which arise on this type of trust are:

- The trust reaches a 10-year anniversary of when it was set up
- Assets are transferred out of the trust
- The trust comes to an end an loans are written off at that point

Based on the loans which you received, the Inheritance Tax due is £4,548.77"

That's it. No breakdown of calcs, no percentages - nothing. You might conclude from that that they believe they are on shakier grounds with the IHT. Boobetty's suggestion looks pretty close, though.

[meanttobeworking]

I received a settlement calculation today too. Round figures for 2010/11, EBT scheme, loans of £35k, tax of £11.5k, interest £1k.

Payment options (from point of acceptance):

1) settle within 30 days
2) settle within 90 days
3) request more than 90 days, in which case a) initial payment of x, followed by b) monthly payments of y where x and y are figures entered by me, and subject to approval

And a statement saying "based on supplied information, no Inheritance Tax due *at this time*.

Interesting to understand why they add "at this time" if this is a settlement opportunity...

[Boobetty]

LadyP....without wanting to suggest your next move, I think you are entitled to an explanation for ALL the numbers given.

HMRC providing a full breakdown against the obvious (and more justifiable) numbers together with the conspicuous absence of the same for the IHT number makes this a little comical...as if they just slip it in and hope you don't notice and/or ask questions.

[LadyPenelope]

LadyP....without wanting to suggest your next move, I think you are entitled to an explanation for ALL the numbers given.

HMRC providing a full breakdown against the obvious (and more justifiable) numbers together with the conspicuous absence of the same for the IHT number makes this a little comical...as if they just slip it in and hope you don't notice and/or ask questions.

I know, it's quite telling, isn't it?
The loans are on the Income Tax comp as "Other income". I guess they think this classification allows them to apply both taxes to the same income. Doesn't seem right to be able to do this though.

[Rob79]

With thanks to a poster on this thread, I now have a better view of the IHT charge basis.

To paraphrase that information, HMRC want to charge IHT on loans made from a trust which may be written off or out of that trust. At the same time they want to charge the "loans" as income.

Seems to me to be a conflict here.

Either HMRC says these are loans and charges IHT or it is income and charged to IT.

Before we jump to any conclusions (or lifeboats) on this, I'd like to think on it further over the weekend and see if this is a non compatible position for HMRC in law, or whether such situations are common and allowed.

[Rob79]

Activity

I joined this forum a few months back with a view to bringing a view from the tax professional side of the fence, aided by my regular meetings with HMRC and their motives. I hope I have brought some objectivity to the debate, supplied some useful information and most of all, taken away some of the mystery of the position you and HMRC are in. Knowledge is power and if you have better knowledge you achieve better results.

My day job is dealing with complex "investment" schemes that HMRC consider are pretty much all tax avoidance schemes. Some of these you will have read about in the papers who report them with varying degrees of accuracy or sympathy depending on who their favourite celebrity is at the time. Backed by 35+ years of working in tax, the last 8 or so in tax "planning", I think I have the right tools.

That day job is demanding more of my time with the result that I will (with considerable regret) be cutting back on the time I spend here.

My firm's main activities are bringing claims for mis-selling the above tax products and finding solutions with HMRC for our clients. To a degree, dependent upon circumstances, that may be of assistance to some of you. If you wish, please PM me for more details.

I'm not leaving completely and will continue to post and provide links to useful information, but I have to be fair to those who pay me.

Thanks for your time.

[vern19]

I joined this forum a few months back with a view to bringing a view from the tax professional side of the fence, aided by my regular meetings with HMRC and their motives. I hope I have brought some objectivity to the debate, supplied some useful information and most of all, taken away some of the mystery of the position you and HMRC are in. Knowledge is power and if you have better knowledge you achieve better results.

My day job is dealing with complex "investment" schemes that HMRC consider are pretty much all tax avoidance schemes. Some of these you will have read about in the papers who report them with varying degrees of accuracy or sympathy depending on who their favourite celebrity is at the time. Backed by 35+ years of working in tax, the last 8 or so in tax "planning", I think I have the right tools.

That day job is demanding more of my time with the result that I will (with considerable regret) be cutting back on the time I spend here.

My firm's main activities are bringing claims for mis-selling the above tax products and finding solutions with HMRC for our clients. To a degree, dependent upon circumstances, that may be of assistance to some of you. If you wish, please PM me for more details.

I'm not leaving completely and will continue to post and provide links to useful information, but I have to be fair to those who pay me.

Thanks for your time.

Thank you for sharing your professional knowledge.