Settlement Opportunity

[centurian]

Also, will HMRC somehow put protections in place to prevent us from ever having to repay the Trusts for the loans (which are still very real)?

As you have worded it, absolutely zero chance of that. HMRC's job is collect tax for the government, not consumer protection. The fact that their action might leave still you on the hook for the loans - isn't their problem - and behind closed doors, I suspect they relish it.

However, any court judgement with HMRC might have an indirect effect - in that the judgement may be used as evidence to defend any claim to repay the loans. It would largely depend on what approach HMRC use to successfully prove they are not loans - assuming they even can prove they are not loans, which is by no means given.

[StrengthInNumbers]

I don't think they are going to try and prove that these are not loans. They have switched to ToAA in which loans can exist as loans but still be taxed.

[AlCapone]

Just a quick question with respect to the calculations.
If HMRC don't agree that EBT loans are loans, can we ask them to offset the 5% benefit in kind tax that we have already paid on the loan amounts when they calculate the settlement?
Since it's now going to be reclassified as income and be taxed as such, surely we should take into account what's been paid already?

Also, will HMRC somehow put protections in place to prevent us from ever having to repay the Trusts for the loans (which are still very real)?

You'd have to arrange to have the loans written off. HMRC won't get involved with that.

[centurian]

I don't think they are going to try and prove that these are not loans. They have switched to ToAA in which loans can exist as loans but still be taxed.

In which case, that sounds like the worst of both worlds if it is successful. An HMRC victory would not just mean paying the tax, but may also validate the outstanding loan as well.

However, HMRC seem a long way off proving the ToAA argument, if I understand things correctly.

[StrengthInNumbers]

Yeah they are. Strong arguments exists against it.

[StrengthInNumbers]

Settlement Opportunity

You'd have to arrange to have the loans written off. HMRC won't get involved with that.

And as soon as you get loans written off HMRC will slap IHT on you - another 3%-12% tax (I don't have the exact percentage)

[webberg]

And as soon as you get loans written off HMRC will slap IHT on you - another 3%-12% tax (I don't have the exact percentage)

That's probably correct.

You need to separate the treatment of the loans for IT purposes; their treatment for other tax purposes; their legal effect.

For IT, HMRC says that they are really remuneration (Ramsay principle) or that they represent earnings from a UK contract that you have chosen to send oversea (ToAA principle).

For IHT, HMRC says that they are assets of a trust established with you as beneficiary and that a write off is an assignment of value to you for IHT purposes.

Legally, they are sums owed to the trustee.

Can HMRC pick and choose which of the above they apply = YES.

[jbryce]

That's probably correct.

You need to separate the treatment of the loans for IT purposes; their treatment for other tax purposes; their legal effect.

For IT, HMRC says that they are really remuneration (Ramsay principle) or that they represent earnings from a UK contract that you have chosen to send oversea (ToAA principle).

For IHT, HMRC says that they are assets of a trust established with you as beneficiary and that a write off is an assignment of value to you for IHT purposes.

Legally, they are sums owed to the trustee.

Can HMRC pick and choose which of the above they apply = YES.

They can choose, but they will surely struggle to apply both?
Would IHT explain why they are ignoring the loan side of things and focussing on the ToAA?
The Ramsay principle they haven't used and haven't managed to use in the Rangers case.

It's all a bit of a mess.

[StrengthInNumbers]

In courts for properly implemented schemes they will fail on both but they are dragging their feet in letting cases proceed to courts. They play that game very well.

[webberg]

They can choose, but they will surely struggle to apply both?
Would IHT explain why they are ignoring the loan side of things and focussing on the ToAA?
The Ramsay principle they haven't used and haven't managed to use in the Rangers case.

It's all a bit of a mess.

It's a mess but the broom required to clean it has to be long and expensive.

The core contradiction is whether an analysis for one tax holds for another. The answer is "it depends".

That's a matter of context, legal construction, previous cases, individual circumstances.

The only way to resolve that is to find a suitable analysis and drive it relentlessly, if necessary though the Courts.