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AML 2019 Loan Charge

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  • Loan Ranger
    replied
    Originally posted by Iliketax View Post
    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.

    Leave a comment:


  • Iliketax
    replied
    Originally posted by QUODM View Post
    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.

    Originally posted by QUODM View Post
    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

    Originally posted by QUODM View Post
    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).

    Originally posted by QUODM View Post
    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).

    Originally posted by QUODM View Post
    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).

    Originally posted by QUODM View Post
    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).

    Leave a comment:


  • QUODM
    replied
    Repaying with cash

    Originally posted by Iliketax View Post
    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?

    Leave a comment:


  • Loan Ranger
    replied
    Originally posted by DOT COM View Post
    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.

    Leave a comment:


  • WTFH
    replied
    Originally posted by THISISWRONG View Post
    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?

    Leave a comment:


  • DOT COM
    replied
    Originally posted by Loan Ranger View Post
    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 ?

    Leave a comment:


  • Loan Ranger
    replied
    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.

    Leave a comment:


  • Iliketax
    replied
    Originally posted by THISISWRONG View Post
    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:

    Originally posted by s554R(1)(c)
    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).

    Leave a comment:


  • GreenMirror
    replied
    Originally posted by THISISWRONG View Post
    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.

    Leave a comment:


  • THISISWRONG
    replied
    Originally posted by WTFH View Post
    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?

    Leave a comment:

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