Finance Bill 2017-18 V HMRC DR Settlement Terms

[luxCon]

From the other thread I now understand that I am liable for full tax on the lump sum of all years I had an EBT for within one tax year. This will push me in to 45% tax bracket.

Therefor will it be cheaper to settle each year as per HMRC settlement offer below if for each pre 2011 tax year that I had an EBT there were some unused tax allowance for that year?

https://www.gov.uk/government/public...ttlement-terms

[ChimpMaster]

From the other thread I now understand that I am liable for full tax on the lump sum of all years I had an EBT for within one tax year. This will push me in to 45% tax bracket.

Therefor will it be cheaper to settle each year as per HMRC settlement offer below if for each pre 2011 tax year that I had an EBT there were some unused tax allowance for that year?

https://www.gov.uk/government/public...ttlement-terms

This is what I am trying to work out too. I think you'll need time with a professional advisor to get the numbers right.

There are so many variable factors to consider.

One of the unknowns is Interest for open years. Under settlement this is due, no doubts there. But under the Loan Charge there doesn't yet appear to be any requirement for interest... though HMRC could chase for this later.

The Sept 2018 200% penalty is something new to consider but it's not clear of HMRC can/will apply this in contractor cases.

If you have no open years then it's pretty even. Something like 45% to 40%.

[BrilloPad]

HMRC think you will pay 45% income tax.

Then 40% IHT.

Get professional advice.

[CDJ]

From the other thread I now understand that I am liable for full tax on the lump sum of all years I had an EBT for within one tax year. This will push me in to 45% tax bracket.

Therefore will it be cheaper to settle each year as per HMRC settlement offer below if for each pre 2011 tax year that I had an EBT there were some unused tax allowance for that year?

https://www.gov.uk/government/public...ttlement-terms

It reasonably easy to get an idea - I had a pre-2011 EBT, so simply checked my loan amounts vs my P11D (where the loans were declared as a BIK) and then applied the tax rate for each year (listentotaxman.com is a good resource here).. and was pretty much spot on to the amount that HMRC came up with (I settled under CLSO 1).

Two key points to remember when making a comparison
- settling each year means that you can apply the tax free threshold and lower rate tax on some of your loans - BUT, you will get charged interest (easiest thing to do is assume 3% simple interest starting from Jan 30th of the year after the April tax year end)
- paying the loan charge in 2019 - if you go over 150k income, yes you will get charged 45%, but you will also lose £1 of your tax free threshold for every £2 over £100k (or near enough) - so your effective rate of tax for £100-150k is more like 60%

[ChimpMaster]

It reasonably easy to get an idea - I had a pre-2011 EBT, so simply checked my loan amounts vs my P11D (where the loans were declared as a BIK) and then applied the tax rate for each year (listentotaxman.com is a good resource here).. and was pretty much spot on to the amount that HMRC came up with (I settled under CLSO 1).

Two key points to remember when making a comparison
- settling each year means that you can apply the tax free threshold and lower rate tax on some of your loans - BUT, you will get charged interest (easiest thing to do is assume 3% simple interest starting from Jan 30th of the year after the April tax year end)
- paying the loan charge in 2019 - if you go over 150k income, yes you will get charged 45%, but you will also lose £1 of your tax free threshold for every £2 over £100k (or near enough) - so your effective rate of tax for £100-150k is more like 60%

When you settled, was it "full and final" with no chance of further recourse from HMRC?

Were you charged IHT at that time?

[CDJ]

When you settled, was it "full and final" with no chance of further recourse from HMRC?

Were you charged IHT at that time?

Yes to full and final for all years prior to 2011, but not inclusive of IHT.. IHT was always going to be separate - I have just settled the tax on the amounts paid to me from the trust.

For IHT, my particular scheme is a bit stuck as the Trustee believes they will be liable for the IHT (and so obviously not that keen to write-off loans) if there is any IHT to pay (they are also adamant that IHT doesn't apply based on the trust docs) - so we're a little stuck..

Personally though, I've taken the position that the loans were a sham and declared the amounts as other income - if the Trust wants to make noise, I will fight them to declare the loans invalid - maybe I'll need to finalise the IHT question at some point - but this thing caused me enough stress that I'm just not bothered worrying about it anymore..

[regron]

Yes to full and final for all years prior to 2011, but not inclusive of IHT.. IHT was always going to be separate - I have just settled the tax on the amounts paid to me from the trust.

For IHT, my particular scheme is a bit stuck as the Trustee believes they will be liable for the IHT (and so obviously not that keen to write-off loans) if there is any IHT to pay (they are also adamant that IHT doesn't apply based on the trust docs) - so we're a little stuck..

Personally though, I've taken the position that the loans were a sham and declared the amounts as other income - if the Trust wants to make noise, I will fight them to declare the loans invalid - maybe I'll need to finalise the IHT question at some point - but this thing caused me enough stress that I'm just not bothered worrying about it anymore..

I genuinely don't mean this to sound as pedantic as it does, but that is the problem with CLSO, neither version 1, or version 2 are 'Full and Final' As a lot of CLSO1 takers, with closed years and assumptions IHT isn't and issue will find out when the 2019 charge hits.

[ChimpMaster]

I genuinely don't mean this to sound as pedantic as it does, but that is the problem with CLSO, neither version 1, or version 2 are 'Full and Final' As a lot of CLSO1 takers, with closed years and assumptions IHT isn't and issue will find out when the 2019 charge hits.

Wrong, as I understand it.

If you settled under CLSO1 for all loans taken, then you don't need to declare anything under the loan charge regime.

CLSO2 settlement - yes in this case you still need to complete all information for the loan charge but there shouldn't be any payment to make. IHT will persist if not covered under settlement terms.

[regron]

Wrong, as I understand it.

If you settled under CLSO1 for all loans taken, then you don't need to declare anything under the loan charge regime.

CLSO2 settlement - yes in this case you still need to complete all information for the loan charge but there shouldn't be any payment to make. IHT will persist if not covered under settlement terms.

I mean IHT ? Assuming that wasn't settled.

And where people were lead to believe closed years were closed. All indications suggest they may go back and ask for those to be settled now the new charge has arrived. Unless people got this written in stone as part of the contract.

[CDJ]

I genuinely don't mean this to sound as pedantic as it does, but that is the problem with CLSO, neither version 1, or version 2 are 'Full and Final' As a lot of CLSO1 takers, with closed years and assumptions IHT isn't and issue will find out when the 2019 charge hits.

Why wouldn't it be? (full and final).. As I said, we were told and agreed that IHT had to be treated separately.. by the terms of the 2019 charge (as I understand them and have had them explained to me by an advisor), CLSO excludes me from the 2019 loan charge (although there is still a question of whether I am required to declare the loans regardless) - so again - why isn't the CLSO "full and final"??

IHT is a very very complex area of tax law, but it also has sweet FA to do with the 2019 charge - to be clear, the 2019 charge settles the Tax owed to HMRC for the amounts paid to you as a "loan" from a trust - it does not settle the loan with the Trust which is where the IHT arises..