AML 2019 Loan Charge

[Runster]

This is your life partner. She has probably noticed how stressed and worried you are, so maybe you should just explain. This affects both of you and you haven't done anything wrong. You made a bad choice. You're gonna sort it but you need her support. Good luck.

Done it now, thanks.

[Where did it all go wrong]

Done it now, thanks.

I hope it went better than expected.
We will all get through this. It’s tough times but we all need to hold it together or the b******s will have won.

[THISISWRONG]

Says who?

Let's say you had a loan for £50k from Knox House Trust.
If you repay that £50k to Knox House Trust, you do not have the money, it is with Knox House Trust, who will then say that you have repaid the money they loaned you, thank you very much end of story.

You are a borrower, not a trustee. Unless you get Knox House Trust to agree to repay your company, then there's nothing you can do. You can't transfer the trust. You can't appoint your own trustees.

Lets assume.... Knox House Trust have agreed that they would transfer the trust to new trustees onshore in the uk.
If the trustees retain the money and agree to use it to (for example) buy a property and rent it out, or buy a classic car and rent it out, or invest in stocks etc. As long as this is a commercial arrangement, will that not suffice HMRC and be an end to and further challenge from HMRC to tax you?

It would seem even more incredibly harsh of HMRC to give you the option to settle, pay the loan charge in 2019 or repay... for only to then say "we know you repaid, but we are going to charge you the loan charge on it now anyway.... especially if no assessments are raised and its a closed year.

Or am I missing something?

[WTFH]

Lets assume.... Knox House Trust have agreed that they would transfer the trust to new trustees onshore in the uk.
If the trustees retain the money and agree to use it to (for example) buy a property and rent it out, or buy a classic car and rent it out, or invest in stocks etc. As long as this is a commercial arrangement, will that not suffice HMRC and be an end to and further challenge from HMRC to tax you?

It would seem even more incredibly harsh of HMRC to give you the option to settle, pay the loan charge in 2019 or repay... for only to then say "we know you repaid, but we are going to charge you the loan charge on it now anyway.... especially if no assessments are raised and its a closed year.

Or am I missing something?

Sorry, I've tried to explain things to you simply and you've come back with a convoluted scheme that sounds like it's coming from Vanquish or some other AML type scheme for how to get out of paying the tax that is deemed to be owed.

I think the thing you are missing is a tax advisor.

[Loan Ranger]

It would seem even more incredibly harsh of HMRC to give you the option to settle, pay the loan charge in 2019 or repay... for only to then say "we know you repaid, but we are going to charge you the loan charge on it now anyway...

It's not a case of HMRC being harsh.

They have to implement the legislation, and the legislation stipulates when the repayment of a loan is to be treated as a relevant step.

[Runster]

I hope it went better than expected.
We will all get through this. It’s tough times but we all need to hold it together or the b******s will have won.

I agree, thanks. She is absolutely horrified. I did discuss it with her at the time I was considering it. Not that I’m trying to share culpabiliyty with her - it was my choice - just saying I didn’t do it behind her back. She’s a civil servant, and is worried that if her employers finds out, it will damage, even end, her career. And the thought of us working for 4-5 years just to pay HMRC depresses her.

But she knows the score now. I’m still contracting and on a good day rate, so we won’t sink, but I have two primary age children, and we’re worried for them.

[THISISWRONG]

Sorry, I've tried to explain things to you simply and you've come back with a convoluted scheme that sounds like it's coming from Vanquish or some other AML type scheme for how to get out of paying the tax that is deemed to be owed.

I think the thing you are missing is a tax advisor.

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?

[GreenMirror]

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?

Several in one scheme have paid back 10% of the loan. The money has not been seen since.

[Iliketax]

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?

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.

By way of background, in the early 2000s some big investment banks and other employers paid employees bonuses through an EBT. Most then took loans from the trust. Some left the funds in there and asked the trustee to invest in things (like shares, coinvest, a holiday home on the Algarve, some polo ponies).

When the disguised remuneration rules came in, there were four types of situation:

1. Actually getting value out of the trust: this catches payments from a trust, transfers of assets, grants of long leases, etc

2. Not legally getting value out but who cares: this catches situations where someone uses an asset of the trust as if they owned it (little gets caught by this)

3. Leaving the asset in the trust but it is earmarked by the trustee with a view to doing one of the above. This earmarking can be formal or informal.

4. For pensions, earmarking by the employer can be caught (no idea why someone at HMRC, let's call him Stephen, wanted this one but it there)

You can read about them here: https://www.gov.uk/hmrc-internal-man...anual/eim45055

So sticking to earmarking, if £100 of cash is earmarked for you today then employment income tax is due on £100. But what happens if the trustee then uses "your" £100 to buy £100 of shares, which go up to £110 and are then sold, with the cash being used after a couple of days to buy £110 of different shares. Each time the accountant at the trustee notes that "your" value has moved from cash to shares, got some growth in value, etc. Each time that is an earmarking.

This is common with many unapproved pensions (e.g. FURBS, ERFBS, IPPs). So the government said that if earmarked cash is invested in an asset, or an earmarked asset is sold for cash, then while that is an earmarking it does not create a tax charge. Similarly, if there is investment return/growth in value on an earmarked asset then earmarking that return does not create a tax charge. But there are conditions. One of those is that it is all done on an arm's length basis. Another is that the sum / asset acquired by the trust using earmarked money / assets can't come from the employee:

sum or asset T is not acquired (directly or indirectly) from A or any person linked with A

So if the trustee hold a loan receivable from a random stranger and they repay it then the cash received is earmarked for you but is not taxed because of s554R. But if it is you that repays the loan and the cash is earmarked for then it is taxed as s554R does not apply. The blog post does not mention this. If you are interested, why not leave a comment at the bottom and ask them to explain why they thing there is no earmarking charge?

Just to be clear, I've written this from the context of the employee rules (self-employed ones have different rules but repaying a loan would appear to be a qualifying third party payment and you would have power to enjoy the money held by the trustee so the end result is probably the same).

[Loan Ranger]

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.