AML 2019 Loan Charge

[DOT COM]

If you repay your loans, you still have to provide info on them by 30 Sept 2019.

Anyone doing this should be prepared for close scrutiny from HMRC. Make sure you have all your ducks in a row.

Other than declaring and repaying the loan amounts what “ other “ close scrutiny are you suggesting HMRC will apply to individuals ?

[WTFH]

Sorry, didn't mean it be convoluted.
I have read that one option to avoid the 2019 Loan charge is to repay the funds back to the trust.

I took this from comments on this blog - https://www.enterprisetax.co.uk/april-2019-loan-charge/

General

Temporarily ignoring any other relevant attacks, the legislation is clear. One stands at a fork in the road. Do you repay the loan or do you suffer the April 2019 loan charge? A valid choice presented by the legislation.

Ignoring other considerations, I would rather pay money back to the trustees than to HMRC. This is because it is money that could be used by me again in the future. Even if, in the worst cases scenario, that income proves to be taxable when I choose to use I will at least be able to control the tap.

That said, it is clear that those funds can be used for commercial opportunities and retain the IHT attractions of the trust at the same time.

In short, it is a tax advisor saying that you can repay the loan and invest the funds. All I was asking is... has anybody done this option and is it the end if you do?

OK, so why did you leave out the other options?
You've said:

Do you repay the loan or do you suffer the April 2019 loan charge?

The article says:

April 2019 Loan Charge: What are the options?

Taking into account the above, a list options might be as follows

Explore settlement with HMRC – this is clearly HMRC’s preferred route. It involves the least resources and practical difficulties on their part and this is reflected in the extensive guidance and terms offered;
Repay the loan to the Trustees; or
Suffer the April 2019 loan charge.

The article does not mention anything about moving the loan to other trustees. Can you explain how that would work?
Are you suggesting that you pay back KHT £50k, then you ask them to launder that £50k from offshore to a UK based trust without incurring costs/taxes, then you coincidentally being involved in that trust because, for some reason, you think you have a right to the money?
I'm really confused by what you want to do and how you think it would work. Have you spoken to any tax advisors about it, or where did you get the idea from?

[Loan Ranger]

Other than declaring and repaying the loan amounts what “ other “ close scrutiny are you suggesting HMRC will apply to individuals ?

If you repay the loans to the lender (trustee), HMRC will investigate if it's avoidance motivated, and it would be down to you prove that it's not.

[QUODM]

Repaying with cash

I've not read the full blog post but the bit about repaying loans is wrong. They have just looked at the April 2019 loan charge legislation and not considered the original disguised remuneration legislation.

How do you think this works exactly? The legislation is clear that if you repay the loans in cash, the relevant step does not occur (presumably pretending that repaying the loans in one year is a fair way out to parliament).
Assuming you don't go down another tax avoidance route suggested before but took a mortgage e.g. to repay a loan and repaid it in cash then categorically the loan charge will not apply? Do you agree?
But you are suggesting that since the funds are 'earmarked' by trustee another charge will occur (not the loan charge). When will this occur? On April 2019 or when you first took the loan from the trust?
If you took the loan from the trust pre 2011 (which is now before the 6 years) e.g. and repaid in cash and full, how or when would they apply an earmarking charge? When you take the money from the trust again or for that previous year (which may or may not be closed?). So either they're out of time to investigate something over 6 years ago if no opened enquiry? or you could hold the cash in the trust and defer any further charge till you collect it then (retirement e.g.)?

When do you think this charge would occur and how exactly?

[Iliketax]

How do you think this works exactly?

Have a look at some of the links that I set out. HMRC's guidance set it out in some detail. If you have specific question, write it down.

The legislation is clear that if you repay the loans in cash, the relevant step does not occur (presumably pretending that repaying the loans in one year is a fair way out to parliament).

That is right (with caveats about tax avoidance schemes). And just to be clear the relevant step that you are saying does not happen is the loan that is deemed to be made on 5 April 2019 - Finance (No. 2) Act 2017

Assuming you don't go down another tax avoidance route suggested before but took a mortgage e.g. to repay a loan and repaid it in cash then categorically the loan charge will not apply? Do you agree?

Yes, the loan charge would not apply. You'd still have to report the loan / repayment to HMRC.

Just to be clear that although the April 2019 loan charge does not apply, that does not stop any other charging provisions applying (like the normal disguised remuneration rules).

But you are suggesting that since the funds are 'earmarked' by trustee another charge will occur (not the loan charge). When will this occur?

Yes. When the trustee's actually do the earmarking (e.g. when they go "wow, we've got some cash from QUODM. We promised that we would look after it for her") that is itself a relevant step (s554B ITEPA).

Again just to be clear, this earmarking tax charge is based on someone thinking about doing something in the future (even if they are not sure about what, when or how they will do it).

On April 2019 or when you first took the loan from the trust?

As above, probably immediately after the loan is repaid (e.g. March 2009 if you want to make sure that the banking system doesn't do a TSB).

If you took the loan from the trust pre 2011 (which is now before the 6 years) e.g. and repaid in cash and full, how or when would they apply an earmarking charge? When you take the money from the trust again or for that previous year (which may or may not be closed?). So either they're out of time to investigate something over 6 years ago if no opened enquiry? or you could hold the cash in the trust and defer any further charge till you collect it then (retirement e.g.)?

When do you think this charge would occur and how exactly?

As above, on the earmarking. Closed years, open years, etc will have nothing to do with it. Technically, there is a further tax charge when the cash is paid to you (or someone linked to you) but you get full tax relief on that because you will have paid tax on the earmarking.

If the employer is still around then PAYE/NIC is due. If it is not, then self-assessment.

How will HMRC know? Obviously you will do your tax return properly and include any disguised remuneration tax charge.

If I was HMRC (and I'm not) I would expect a letter to be sent to everyone who says they've repaid their loans enquiring in to their tax return, asking (i) are you sure that what you put on your tax return and loan report and complete, (ii) evidence that you have repaid the loan (e.g. something from the trustee), (iii) evidence you've repaid the loan in money (e.g. bank statement), (iv) evidence of where the cash came from (e.g. mortgage from a bank that you found yourself and on exactly the same terms as a member of the public at large could get vs loan on other terms), (v) what has happened to the cash after it has been repaid, (vi) what future benefits you or people linked with you might get in the future, (vi) copies of all documents or communications you had with the trustee discussing the repayment of the loan and what may happen to it in the future, (vii) what you have done about IHT (e.g. entry charge, ten year charge, exit charge), (viii) what advice you received in relation to IHT (from someone who is not an interested person), and (ix) the what advice you received in relation to any loans made in the requirement to correct period (from someone who is not an interested person).

[Loan Ranger]

If I was HMRC (and I'm not) I would expect a letter to be sent to everyone who says they've repaid their loans enquiring in to their tax return, asking (i) are you sure that what you put on your tax return and loan report and complete, (ii) evidence that you have repaid the loan (e.g. something from the trustee), (iii) evidence you've repaid the loan in money (e.g. bank statement), (iv) evidence of where the cash came from (e.g. mortgage from a bank that you found yourself and on exactly the same terms as a member of the public at large could get vs loan on other terms), (v) what has happened to the cash after it has been repaid, (vi) what future benefits you or people linked with you might get in the future, (vi) copies of all documents or communications you had with the trustee discussing the repayment of the loan and what may happen to it in the future, (vii) what you have done about IHT (e.g. entry charge, ten year charge, exit charge), (viii) what advice you received in relation to IHT (from someone who is not an interested person), and (ix) the what advice you received in relation to any loans made in the requirement to correct period (from someone who is not an interested person).

I think such a letter is a given.

HMRC will need a lot of convincing that a repayment is not part of a "cunning plan" to avoid the LC but retain the benefit of the money.

[THISISWRONG]

Im not looking for any action that is risky, but i did think that having a trust still may have a benefit - and if you can afford to repay the trust, rather than HMRC, then at least you can look to get benefit from the money at some point - if you drip feed it out as a pension pot when you retire.
Is that not better than giving a slightly lower amount to HMRC?????

Looks like AML are about to go bump too:
https://beta.companieshouse.gov.uk/company/07014344
Registered office address
Blackfriars House, Parsonage, Manchester, England, M3 2JA
Company status
Active — Active proposal to strike off

[cojak]

And the director is also involved with Knox.

https://beta.companieshouse.gov.uk/company/10803115

[Loan Ranger]

Im not looking for any action that is risky, but i did think that having a trust still may have a benefit - and if you can afford to repay the trust, rather than HMRC, then at least you can look to get benefit from the money at some point - if you drip feed it out as a pension pot when you retire.

That is exactly what the earmarking provisions are designed to prevent.

[SailedUpTheRiver]

Pension contributions

Can someone please explain the pension contribution scenario please? I am planning on settling with HMRC through and independant tax advisor and have seen various posts with reference to pension contributions. Does your liability with HMRC reduce if you agree to contribute to a pension?