• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Trust Fees for settling loans

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    #21
    Originally posted by RickG View Post
    I've pondered this point over the last few weeks, having read some of your previous posts. On what basis would an employee pay money to a trust - ie. what advantage is there for an employee to do so, only to have the same money loaned back to them?

    Just wondering how this point would play out in court when determining if the loan is enforceable or not.
    The honest answer is that I don't know.

    I think that Lord Hodge must have had in mind, when considering Rangers, that there was a difference between the tax analysis (broadly the employee becoming taxable when entitlement arose) and the reality of the cash flows, which was money from employer to trust. He must have thought that because the tax code creates the tax point, then the redirection elsewhere was not relevant.

    The fact that the tax analysis ignores the actual cash flows is not unique. We do however have to consider the cash flow.

    Whether the employee agreed to (his/her) money going to the trust explicitly or implicitly, the fact is that the trust should have had the money. (Sadly not always the case). There does not have to be an advantage to the employee in the money going to the trust.

    The trust then made the loan. The source of the funds for the loan is probably of no relevance in determining whether the loan agreement is enforceable or not. That will be determined by the legal terms of the agreement.
    Best Forum Adviser & Forum Personality of the Year 2018.

    (No, me neither).

    Comment


      #22
      Confused

      I have to say this is all very confusing and frustrating. On the one hand, those who wish to settle want finality and may want the loan cancelled / written off - however this comes with potential IHT issues. Alternatively, to leave the loan "live" means it may at some future date be transferred / sold / or demanded.

      So where is the finality of settling?

      I think HMRC need to come out with clear guidance that, for those settling, the associated trust loan is deemed as income (which is what they definitely are saying) and may then be written-off by the trust without creating another taxable event.

      Comment


        #23
        Originally posted by Dmac View Post
        I have to say this is all very confusing and frustrating. On the one hand, those who wish to settle want finality and may want the loan cancelled / written off - however this comes with potential IHT issues. Alternatively, to leave the loan "live" means it may at some future date be transferred / sold / or demanded.

        So where is the finality of settling?

        I think HMRC need to come out with clear guidance that, for those settling, the associated trust loan is deemed as income (which is what they definitely are saying) and may then be written-off by the trust without creating another taxable event.
        Well HMRC in fact have said the opposite. They say that even if you settle, a subsequent event on the loan and/or the trust may create a liability.

        If the lender does not release/write off within the short period HMRC say, then the agreements we have seen reserve the right to tax the amount again later.

        Pleas to HMRC that this is unfair and creates a disincentive to settle are usually met with "we cannot give certainty over future tax laws".

        So I agree, if you settle, you are reliant upon HMRC for certainty and frankly given their past performance in this space, we include some very strong warnings to clients going down this route.
        Best Forum Adviser & Forum Personality of the Year 2018.

        (No, me neither).

        Comment


          #24
          Originally posted by webberg View Post

          If the lender does not release/write off within the short period HMRC say, then the agreements we have seen reserve the right to tax the amount again later.
          How might they do that? More loan charges?
          Last edited by starstruck; 18 June 2018, 16:50.

          Comment


            #25
            Originally posted by starstruck View Post
            How might they do that? More loan charges?
            The settlement generally says that if you pay tax on the loans as though they were income, then arrange for the loans to be written off, then you will pay income tax, perhaps some IHT and that is that.

            I still have doubts about the strength of the "guarantee" that the loan charge will not apply, but I'm sure others will be along to shout that down.

            If you cannot arrange for the loans to be written off within the period permitted in the settlement, then the loan still has to be dealt with.

            That might be a write off or release. That is specifically taxable as a disguised remuneration event (and if not as a more general income tax event).

            If it is a repayment, then there is no immediate charge. However the lender has cash and if that cash is earmarked for you, immediately or later, that is also a tax event as disguised remuneration.

            If the cash is repaid to you, not only will that probably mean there is no effect on the loan charge, but the amount is taxable as a distribution from a trust. To make it not taxable, it has to be a capital distribution (possible?) or be covered by the earlier tax charge as disguised remuneration (and I see no relief provisions).

            So the danger lies in not achieving a write off or release at the time of settlement.

            This also creates an opportunity for some of the firms we see moving into this space to charge a lot of fees on the pretense that HMRC need proof of write off (false claim) or "must" have a write off (false claim).
            Best Forum Adviser & Forum Personality of the Year 2018.

            (No, me neither).

            Comment


              #26
              Originally posted by webberg View Post
              I still have doubts about the strength of the "guarantee" that the loan charge will not apply,
              This is worrying.

              If you don't mind me asking, what would your advice be - settle or not (given the lack of clarity)?

              Comment


                #27
                Originally posted by RickG View Post
                This is worrying.

                If you don't mind me asking, what would your advice be - settle or not (given the lack of clarity)?
                I would not presume to give advice to anybody whose situation is unknown to me and who is not protected by being a client.

                In these forums, everybody is anonymous and should be treated with caution.

                Some of us claim knowledge in this space but even then all we can do is explain the consequences of certain actions. We cannot take into account the dozens of factors that are present in an individual's decision to settle or not.

                The info above is for all. It is a reflection of what others have said.
                Best Forum Adviser & Forum Personality of the Year 2018.

                (No, me neither).

                Comment


                  #28
                  Originally posted by webberg View Post
                  The settlement generally says that if you pay tax on the loans as though they were income, then arrange for the loans to be written off, then you will pay income tax, perhaps some IHT and that is that.

                  I still have doubts about the strength of the "guarantee" that the loan charge will not apply, but I'm sure others will be along to shout that down.

                  If you cannot arrange for the loans to be written off within the period permitted in the settlement, then the loan still has to be dealt with.

                  That might be a write off or release. That is specifically taxable as a disguised remuneration event (and if not as a more general income tax event).

                  If it is a repayment, then there is no immediate charge. However the lender has cash and if that cash is earmarked for you, immediately or later, that is also a tax event as disguised remuneration.

                  If the cash is repaid to you, not only will that probably mean there is no effect on the loan charge, but the amount is taxable as a distribution from a trust. To make it not taxable, it has to be a capital distribution (possible?) or be covered by the earlier tax charge as disguised remuneration (and I see no relief provisions).

                  So the danger lies in not achieving a write off or release at the time of settlement.

                  This also creates an opportunity for some of the firms we see moving into this space to charge a lot of fees on the pretense that HMRC need proof of write off (false claim) or "must" have a write off (false claim).
                  I find this quite a confusing answer. Just to recap, to be sure I understand:

                  So you said "If the lender does not release/write off within the short period HMRC say, then the agreements we have seen reserve the right to tax the amount again later."

                  I asked "How might they do that?"

                  I think this is what you have replied, please correct me if I am wrong:

                  (1) You think they may be able to tax them again using the 2019 Loan Charge
                  (2) You think they may be able to tax them when you get them released after settlement (which they would do during settlement anyway so I don't see how it is any worse doing during or after settlement)
                  (2) You think if you repay the loan and then get the cash back they may be able to tax again (although why would you settle and then repay the loan?!)

                  You add "So the danger lies in not achieving a write off or release at the time of settlement."

                  If you get the loans written off at the time of settlement you pay IHT. If you get them written off after settlement you may have to pay IHT. Following you arguments, the only danger I can see of not doing it at the time of settlement goes back to (1) above, which is they get caught by the Loan Charge.

                  So in summary, when you say they may tax again - it seems to be the 2019 loan charge you are talking about. So people need to decide how much they trust that HMRC won't apply the 2019 Loan Charge after a settlement.

                  Of course there are lots of people who have had the loans written off BEFORE settling. This scenario doesn't ever seem to get discussed. They get caught by the Loan Charge because HMRC ignore writing off/depreciation etc.. when looking at outstanding values, but if you were to settle there is nothing to write off at that time (as it has already been done). Anyone have any thoughts on this situation?

                  Comment


                    #29
                    I think you have misread the post.

                    If you settle and have the loans written off within the period allowed then you probably pay income tax just once. (I'll not confuse this with IHT).

                    If you settle and do not get a write off, then the settlement agreements we have seen give HMRC the ability to look again at your position when you do something with the loan.

                    That "something" is either a write off outside the settlement period or a repayment.

                    A write off is taxable under Part 7A. You may have paid tax under the settlement but the ability of a new charge to arise seems to be unaffected. I hope that this is not the case, but at the moment, I cannot see any direct route to claiming that relief should be given for the tax already paid as part of the settlement.

                    A repayment means that the lender now has cash. A repayment of the loan should not in itself trigger a charge on you, but what happens to the cash?

                    If the lender arranges for it to come back to you, it is likely to be caught by the disguised remuneration rules. Even if the lender just agrees to hold the cash to your account, it could be taxable.

                    HMRC has long held that if you are taxed as part of the general rules and taxed again by an anti avoidance rule, that is intentional.

                    The loan charge in 2019 will not apply if you have settled (according to wisdom from other advisers here). The loan charge will not apply if you have repaid the loan and not received the money back.
                    Best Forum Adviser & Forum Personality of the Year 2018.

                    (No, me neither).

                    Comment


                      #30
                      The loan charge and loans already gone.

                      The fact that a loan may not exist at the trigger date (17th March 2016) may not protect you from the charge.

                      The basis of the charge is spelt out in the legislation.

                      It is the original amount less the repayment amount.

                      A write off or a depreciation of the loan is NOT repayment.

                      Therefore HMRC claim that for the purposes of the loan charge, unless a loan has been repaid in money, a charge arises on the balance at 17th March 2016.

                      I have some doubts over that analysis but it is the line HMRC takes.
                      Best Forum Adviser & Forum Personality of the Year 2018.

                      (No, me neither).

                      Comment

                      Working...
                      X