Settlement Opportunity

[NeedTheSunshine]

Looks like a standard letter, you must register to settle and must accept our terms by end July or we are def going to screw you and give you a much worse deal and take you to a tribunal where we win 80 percent of cases.

Ok thanks. I definitely haven't received that particular letter yet. I wonder if that means they will start issuing APNs in August?

[Boobetty]

I don't need to as I know I am right.

The responsibility to pay IHT in relation to the tenth anniversary, when property leaves the trust or there is otherwise a diminution in the value of the discretionary trust's assets is that of the trustee. You might be confusing this with the IHT that can, in some cases, be due when the money goes in to the trust.

Nope, not confused at all. PM me your email address and I will forward you an HMRC document that discusses various IHT eventualities.

In the meantime, here is s201 IHT Act 1984. Let me know if you still think you are right ;-).

201 Settled property.

(1)The persons liable for the tax on the value transferred by a chargeable transfer made under Part III of this Act are—
(a)the trustees of the settlement;
(b)any person entitled (whether beneficially or not) to an interest in possession in the settled property;
(c)any person for whose benefit any of the settled property or income from it is applied at or after the time of the transfer;
(d)where the transfer is made during the life of the settlor and the trustees are not for the time being resident in the United Kingdom, the settlor.

[Iliketax]

Nope, not confused at all. PM me your email address and I will forward you an HMRC document that discusses various IHT eventualities.

In the meantime, here is s201 IHT Act 1984. Let me know if you still think you are right ;-).

201 Settled property.

(1)The persons liable for the tax on the value transferred by a chargeable transfer made under Part III of this Act are—
(a)the trustees of the settlement;
(b)any person entitled (whether beneficially or not) to an interest in possession in the settled property;
(c)any person for whose benefit any of the settled property or income from it is applied at or after the time of the transfer;
(d)where the transfer is made during the life of the settlor and the trustees are not for the time being resident in the United Kingdom, the settlor.

Before answering this, what right does the trustee have to require you to repay the loan? Oh, and I assume it is interest-free?

[Boobetty]

s86 compliant EBT. Standard contractual right of recall, on demand, no fixed end date, interest free.

IHT liability triggered on exit (loan write off). Income tax liability triggered on inception of the loan. Both are liabilities of the contractor.

The above is set in stone. It is HMRC's 'view' which must be accepted if the contractor wishes to take up the Settlement Opportunity.

[Iliketax]

s86 compliant EBT. Standard contractual right of recall, on demand, no fixed end date, interest free.

IHT liability triggered on exit (loan write off). Income tax liability triggered on inception of the loan. Both are liabilities of the contractor.

The above is set in stone. It is HMRC's 'view' which must be accepted if the contractor wishes to take up the Settlement Opportunity.

As it is a s86 trust, the only time that there would be IHT is if any of the events in s72(2) apply. As it is an on demand loan then the value is reasonably high (I've seen interest-free loans that are repayable on the earlier of 50 years and death which would have a low value to the lender). So why not ask the trustee to pay you an amount equal to the full amount of the loan and you authorise the trustee to use the proceeds of what they pay you to repay the loan (this means that cash does not have to flow to you to to the trustee and back)? Or do it the other way around, repay the loan and get the trustee to gift you the proceeds. The key here is to document this properly so that the amount that you get is a payment (which in my first example is then used to repay the loan) rather than just a waiver of the loan or a notional payment. As the settled property ceases to be comprised in the trust by way of a payment, s72 can't apply and so there is no IHT exit charge.

Don't like that, then if if you are married ask the trustee to make a payment of the right to receive the money from you to your partner (so your partner becomes the borrower). That's a payment out (and if HMRC are less keen to accept that it is a "payment" refer them to the NIC disregard regulations). So again s72 won't apply. Presumably the settlement says no further income tax on the way out of the trust (and I'd want to make sure it covers anyone who may get value out of the trust). Then on your birthday your partner could choose to forgive your loan without tax consequences. That would be quite a nice present...

[SimonJones]

As it is a s86 trust, the only time that there would be IHT is if any of the events in s72(2) apply. As it is an on demand loan then the value is reasonably high (I've seen interest-free loans that are repayable on the earlier of 50 years and death which would have a low value to the lender). So why not ask the trustee to pay you an amount equal to the full amount of the loan and you authorise the trustee to use the proceeds of what they pay you to repay the loan (this means that cash does not have to flow to you to to the trustee and back)? Or do it the other way around, repay the loan and get the trustee to gift you the proceeds. The key here is to document this properly so that the amount that you get is a payment (which in my first example is then used to repay the loan) rather than just a waiver of the loan or a notional payment. As the settled property ceases to be comprised in the trust by way of a payment, s72 can't apply and so there is no IHT exit charge.

Don't like that, then if if you are married ask the trustee to make a payment of the right to receive the money from you to your partner (so your partner becomes the borrower). That's a payment out (and if HMRC are less keen to accept that it is a "payment" refer them to the NIC disregard regulations). So again s72 won't apply. Presumably the settlement says no further income tax on the way out of the trust (and I'd want to make sure it covers anyone who may get value out of the trust). Then on your birthday your partner could choose to forgive your loan without tax consequences. That would be quite a nice present...

I simply don't understand this concept with IHT!

The letter I have received from HMRC says they are treating this loan amount as "Other Income".

If HMRC is treating this loan as "Other Income" than surely they cannot apply IHT to so called "Other Income" as it's already subject to tax?

Isn't this double taxation on single entity - ie Tax and IHT?

What I'm trying to understand is, if this is indeed "Other income" as they say on which tax is due, than this is not a loan (it can't be both the "Other income" and Loan) surely! Therefore, this is not classified as a loan than no IHT is due.

[Boobetty]

Blurb above

First off, your tax advice simply shifts an IHT liability into a (far more expensive) income tax liability not to mention the fact that neither I nor the trustees have hundreds of thousands of pounds to move around. If I did I would not be seeking help from and posting on this forum. In any case, you seem to have answered a question no-one was asking. We were talking about who is liable for IHT. It seems that myself, HMRC and the rest of the planet are on one side, you the other. HMRC spin plenty of FUD around, we don't need bystanders adding to the confusion please.

I simply don't understand this concept with IHT!

You are not alone, it's madness.

[Iliketax]

First off, your tax advice simply shifts an IHT liability into a (far more expensive) income tax liability

OK. I'll stop replying. But I had assumed that a para 59 agreement was part of the settlement.

[Boobetty]

OK. I'll stop replying. But I had assumed that a para 59 agreement was part of the settlement.

I guess you mean section 54.

[Iliketax]

I guess you mean section 54.

No