BIG GROUP

[Iliketax]

The loan charge has ignored currency depreciation of loans. Does IHT do the same? Should we use depreciated values or principal amounts when working out IHT?

With caveats about this not being my area... The amount subject to IHT for a s86 trust is based on the step change in the value of the trusts assets as a result of the event. Values here are based on what a random stranger would pay for the asset.

So if the trust had £100,000 of cash and then gave a loan to a borrower who pays a market rate of interest (based on the length of the loan, the credit worthiness of the borrower etc rather than some random HMRC or nominal rate), then the loan receivable is probably worth £100,000. And so tax would not be due as £100,000 less £100,000 is nothing.

If the loan were given to a very credit worthy person, interest-free and repayable in ten years, the loan receivable may be worth £10,000 to a random stranger (e.g. the BT pension fund). So making the loan would reduce the value of the trust's assets by £90,000. That would then be subject to IHT when the loan is made.

I have no idea what your loan receivable might be worth to a random stranger. Probably not a lot. But who knows. If that is right, the IHT is due on (in my example) £100,000 less £1 (or whatever) when it is made.

The rate of IHT is given by s70(6) IHTA 1984 and depends on how long the assets have been in the trust. Less than three months and it is 0% (hence an earlier comment of mine). For the next ten years is 0.25% for every three months (after that a further 0.2% for every three months).

[webberg]

The debate here is fascinating but I would make a couple of observations and a suggestion.

The "expert" (caveats accepted) is operating without full knowledge of the trusts, the schemes and the various actions and inactions of the past 15 years. Not his/her fault and I for one appreciate the insight and analysis.

Those requesting the information and data are inexpert and I suspect fishing to degree based on inadequate documents, information and understanding of the schemes.

I fear therefore that a coming together of minds at an agreed analysis may be difficult.

I have also observed before that HMRC is sticking obstinately to an analysis that does not accord with the facts. I do think however that they will view the exchange with interest, cherry pick the parts they want and ignore the parts they don't. However we should be wary of making a gift to HMRC at this point.

I suggest that this debate is best carried on via PM or email. You don't need me to broker this although I'd be happy to be an honest broker and share around email addresses. I am happy to be part of the debate or not, as you choose.

[Iliketax]

I suggest that this debate is best carried on via PM or email.

Just to be clear, I don't think information should be chained. I'm happy to comment on a public forum but I'm not happy to correspond by PM.

[ChimpMaster]

I think the debate here is helpful too, especially for those that might not otherwise contribute regularly or for new entrants.

I would hope HMRC have better things to do than trawl through the guesswork we spew out here. But even if they don't, they will choose to attack in a manner that always produces the maximum tax take for them, regardless of whether it is correct to the law.

So it's useful to share information that we're learning (from HMRC's own manuals online). At the very least it enables one to push back on HMRC if you believe they are incorrectly applying tax rules against you.

[webberg]

That's fair enough if you want to continue but can I suggest that a separate thread might be better as putting it in this one (which has a wider remit) risks losing point of making people aware?

[HMRC made Atlas Shrug]

I don't think that the big picture on the April 2019 loan charge is going to change. But that is just my view. If anything changes in relation to employees, it will be (i) to require more information to be given to HMRC for historic loans, and (ii) to plug any perceived loopholes. In my view, neither of these should stop you thinking about a settlement.

The next Finance Bill is due to be published on Friday week. Assuming that the current government stays in power, there will be one a year later. Obviously, there may be an election before then and so there would be opportunities for more Finance Bills. As an aside, if there were to be an election, you'd want to think about what the tax rate would be in April 2019 when you consider whether a settlement is worthwhile.

HMRC don't need to change, they are already asking for information on all historic loans once they got you interested in settling.

This is what HMRC sent me: "I also need to ask for additional information about your loans for the years (listed all the tax years from my start date at Horizon until the years they already had loan information for)."

Since HMRC know who our employer was (Horizon in my case), they know our start date therefore also when our loans would have started. Our options are, either provide the actuals or HMRC make it up which is a lot more than the actuals.

I settled and now HMRC is coming after me for IHT because I had my loan released as part of HMRC's settlement agreement which included IHT. My issue is, HMRC included the release of my loans and IHT in their own settlement agreement and now they want IHT as an addition after the event, to which I'm not agreeing.

This is from HMRC's letter under Inheritance tax section : "If you intend to have the loan written-off as part of the settlement, please let me know on the enclosed Settlement Option form (CL5a)."

In the same letter under Other points they say: "If you settle now, you will only have to pay income tax on the sums you received in the form of loans."

In the next letter from HMRC (the Expected offer that HMRC ended up accepting) it states: "I also acknowledge that inheritance tax is due in respect of my interest in the Trust as set out in the Schedule."

It is HMRC that did not put any IHT due on the Schedule that was part of (included in) HMRC's settlement agreement.

Going on the above. HMRC's own documentation says the release of my loans is to be included in the settlement. HMRC specifically states IHT is due as per the Schedule and HMRC chose not to put any IHT due on said Schedule.

Surely this is a legal contract between HMRC and myself that HMRC should also adhere to ?

[starstruck]

Did you do this settlement yourself or use a professional advisor? This is absolutely in no way a criticism either way, I'm looking at settling myself and am worried about getting into just this sort of mess. Am wondering if a professional handling it might avoid things like this.

[HMRC made Atlas Shrug]

I understand why the above posts are discussing HMRC settlement but it's important to understand your options.

Big Group has an analysis that it believes in and which, if correct, will produce an answer very different from the settlement terms issued on 7th November. It will also deal with the loans.

HMRC has proposed a settlement which is essentially pay tax on all loans, plus interest, pay for closed years, have no certainty over IHT etc and will not deal with the loan.

You can choose to litigate and groups exist for that on certain schemes.

You can choose to bat back HMRC enquiries until one or other the above becomes inevitable.

The one thing you cannot do is bury your head in the sand.

I am curious as to why you still think/say there is no certainty over IHT after a settlement when there is, well for people with Horizon there is. The certainty is HMRC will charge IHT after settling if you release your loan and now I'm guessing, 2019 you if you do not release it. To be clear, the IHT or 2019 (maybe ?) charge is in addition to a settlement agreement after you settled.

The only way to stop additional charges (e.g. IHT or 2019) after settling is if you (Big Group) can get HMRC to give a different settlement to your members than they did me (i.e. HMRC accept less money, I can't see this happen) or find a law that a judge will enforce.

I hope your plans works.

[HMRC made Atlas Shrug]

Did you do this settlement yourself or use a professional advisor? This is absolutely in no way a criticism either way, I'm looking at settling myself and am worried about getting into just this sort of mess. Am wondering if a professional handling it might avoid things like this.

Bummer. I just lost a full explanation (background etc.) and my thoughts but the website dropped it as I pressed submit. I'm not typing all of that in again, sorry. Here is the short answer.

I handled it myself and I tried all the technical reasons/laws I heard of including rules from HMRC's own website. HMRC fobbed it all off. I am in a pickle regarding HMRC's IHT claim but my guess is so is everybody else, even those getting professional advice. They just don't know it yet. At least according to me, I have a contract with HMRC saying IHT is included. My problem (pickle) is, HMRC is now ignoring their own contract!!!!

At the time I looked into this I found all the professionals were guessing, I could do that myself without charging myself a lot of money. It seems like things are progressing (forums like this) but I've not seen a eureka moment yet.

Your decision. Let's say it turns out the professionals were able to save you thousands and you did not go with them, will you be OK with it. Lets say it turns out the professionals were not able to save you anything and you paid for their advice, will you be OK with it.

I have to live with my call. I did all of this before I heard of this forum and the groups on it.

A free tip: Double check everything (all the amounts) HMRC send you, they make mistakes in their favour.

[webberg]

I am curious as to why you still think/say there is no certainty over IHT after a settlement when there is, well for people with Horizon there is. The certainty is HMRC will charge IHT after settling if you release your loan and now I'm guessing, 2019 you if you do not release it. To be clear, the IHT or 2019 (maybe ?) charge is in addition to a settlement agreement after you settled.

The only way to stop additional charges (e.g. IHT or 2019) after settling is if you (Big Group) can get HMRC to give a different settlement to your members than they did me (i.e. HMRC accept less money, I can't see this happen) or find a law that a judge will enforce.

I hope your plans works.

Be clear that Big Group is not settling on HMRC published terms. We have a different agenda.

I say no certainty because as you found out, HMRC will not confirm that any IHT included in the settlement is the final amount you will pay or not - they claim it depends on what happens to the loans after settlement - and neither will they confirm that releasing the loans post settlement will not produce another income tax charge - see the changes to section 689 announced yesterday - and neither will they confirm that liability under the DR charge 2019 will not arise on the same amounts - other than to say that "extensive measures exist for the prevention of double taxation" - not good enough.

Big Group however is not in this space.

The firm advising BG is but then so are a number of other firms.