Settling is more expensive that paying the 2019 loan charge

[Loan Ranger]

In my case they have. Formally closed with nothing to pay.

Bloody hell. Why on earth did they do that?

[pimpernell]

Does anyone know definitively what HMRC offered during clso? I'm reading here: open years plus interest need to be paid; but no nic or promoters fees on open years and closed years are closed - i.e. Nothing to pay. I'd that right? Badly need this info because I contacted HMRC during clso but they never got back to me.

[Loan Ranger]

Detailed Example

Using tax calculator:
UK Tax Calculator 2017 - Updated for the 2016/2017 and 2017/2018 Tax Year

£200k total loans
£50k received in each of 2005/6, 2006/7, 2007/8, 2008/9
Assuming promoters fee 6%. Grossing up loan, gives approx £53k.
£20k salary in each year, for which PAYE has already been deducted

£50k salary in 2018/19

Settlement now

2005/6
Tax on £20k = £3,000
NICs on £20k = £1,600
Subtotal = £4,600

Tax on £73k = £21,100
NICs on £73k = £3,400
Subtotal = £24,500

Additional tax & NICs = £24,500 - £4,600 = £19,900
Interest @ 43% = £8,500
Subtotal = £28,400

2006/7
Tax on £20k = £3,000
NICs on £20k = £1,600
Subtotal = £4,600

Tax on £73k = £21,000
NICs on £73k = £3,500
Subtotal = £24,500

Additional tax & NICs = £19,900
Interest @ 35% = £7,000
Subtotal = £26,900

2007/8
Tax on £20k = £3,000
NICs on £20k = £1,600
Subtotal = £4,600

Tax on £73k = £20,600
NICs on £73k = £3,600
Subtotal = £24,200

Additional tax & NICs = £19,600
Interest @ 27% = £5,300
Subtotal = £24,900

2008/9
Tax on £20k = £2,800
NICs on £20k = £1,600
Subtotal = £4,400

Tax on £73k = £19,800
NICs on £73k = £4,100
Subtotal = £23,900

Additional tax & NICs = £19,500
Interest @ 22% = £4,300
Subtotal = £23,800

Total additional liability = £104,000

2019 Loan Charge

(Using 2016/17 allowances and bands.)

Tax on £50k = £9,200
NICs on £50k = £4,300
Subtotal = £13,500

Tax on £250k = £98,600
NICs on £250k = £8,300
Subtotal = £106,900

Additional liability = £93,400

[Dylan]

Further more (using your figures and same calculator)

Settle 07/08 - £24900
Settle 08/09 - £23800

Then don't bother to pull any salary in 18/19 so £106k declared (guess you could take 5k divs tax free)
Total Tax Deducted £32,300.00
Class 1 National Insurance Deduction £5,640.32
Total Deducted £37,940.32

Total: 86640.32

[Loan Ranger]

Settling later years works out better because the interest is lower.

Approximate percentages, as of end of Feb 2017.

Tax Year..........Accrued Interest
2001/2.................69.3%
2002/3.................62.8%
2003/4.................56.6%
2004/5.................49.2%
2005/6.................42.6%
2006/7.................35.2%
2007/8.................27.3%
2008/9.................22.4%
2009/10...............18.4%
2010/11...............15.4%
2011/12...............12.4%
2012/13................9.4%
2013/14................6.4%

[Dylan]

Settling later years works out better because the interest is lower.

Yup, hence my example settling the last two years and declaring the earlier two on 18/19.

Interesting times...

[Loan Ranger]

Yup, hence my example settling the last two years and declaring the earlier two on 18/19.

Interesting times...

Whacking a lump sum into a pension in 2018/19 would also offset it.

All of this assumes you've got the money to pay them, of course, which many won't have.

[Whysoserious]

Or repay the £200k loan to the scheme provider in full. They then pay you a pension contribution of £200k.

No loan charge applies.

You have your £200k back, albeit in your pension. Of which 25% can be taken tax free if you are aged 55 or over.

[centurian]

Or repay the £200k loan to the scheme provider in full. They then pay you a pension contribution of £200k.

No loan charge applies.

You have your £200k back, albeit in your pension. Of which 25% can be taken tax free if you are aged 55 or over.

You can only put £40K per year into a pension though - rest is taxable at marginal rate. So you'd part with the £200K - and then get another tax bill for the tax on the other £160K

However, you can carry forward some unused years.

The numbers might add up for some though.

[Loan Ranger]

Or repay the £200k loan to the scheme provider in full. They then pay you a pension contribution of £200k.

No loan charge applies.

You have your £200k back, albeit in your pension. Of which 25% can be taken tax free if you are aged 55 or over.

Assuming the scheme provider is still around and, more importantly, you trust them with your money...

...the loan charge includes anti-avoidance provisions to prevent the borrower benefiting from any money repaid.

Only genuine repayments are treated as reducing the outstanding loan balance.