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Trust Fees for settling loans

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    #31
    Originally posted by webberg View Post
    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.

    I would love some of the other people in the know to come in here. Iliketax and Phil at least.

    This seems to be excessive scare mongering by webberg.

    The way I read what he is saying is that settlement is "not final", but that is you fail to get the loan writen off "in a short period of time" you are likely to be taxed again, on the same income, plus possibly the loan charge, plus possible iht.

    If this is the case then settlement is just a con?
    Or is this a sales push by big group/wtt

    Sorry but that is the way I see it.

    I hope i am wrong.

    Comment


      #32
      Originally posted by me206et View Post
      If this is the case then settlement is just a con?
      Or is this a sales push by big group/wtt

      Sorry but that is the way I see it.

      I hope i am wrong.
      You are entitled to your view.

      I'm pointing out what we have been saying since the settlement opportunity arrived which is that achieving finality in a written format is not possible.

      Instead you are reliant upon HMRC's word that they will not apply the law as it's presently written.
      Best Forum Adviser & Forum Personality of the Year 2018.

      (No, me neither).

      Comment


        #33
        Originally posted by webberg View Post
        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.
        Ok, I see.

        So the further taxing would be a result of either (a) the loan charge or (b) something being done with the loans like writing off, repaying (after settlement period). I get it now.

        And, in the event that the loans have already been written off before settlement, presumably (b) can't happen so you're just left with the loan charge risk. (That was more my question).

        I'm not planning to settle anyway, on principal, I would still rather pay against my will the Loan Charge than admit to some wrongdoing (which I don't think I did) and make a voluntary payment! (both of which settlement demands as I understand it)

        Comment


          #34
          Originally posted by me206et View Post
          I would love some of the other people in the know to come in here. Iliketax and Phil at least.

          This seems to be excessive scare mongering by webberg.

          The way I read what he is saying is that settlement is "not final", but that is you fail to get the loan writen off "in a short period of time" you are likely to be taxed again, on the same income, plus possibly the loan charge, plus possible iht.

          If this is the case then settlement is just a con?
          Or is this a sales push by big group/wtt


          Sorry but that is the way I see it.

          I hope i am wrong.
          Iliketax and Phil have both said many times they believe settlement to be final.

          Comment


            #35
            Originally posted by webberg View Post
            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.
            Also quote from webberg


            Originally posted by webberg View Post

            4. The loan charge will not apply if you settle.
            As we are dealing with some people who are very vulnerable, I think scare mongering is well out of order.
            Especially if it is for commercial purposes.

            Comment


              #36
              Originally posted by me206et View Post
              Also quote from webberg




              As we are dealing with some people who are very vulnerable, I think scare mongering is well out of order.
              Especially if it is for commercial purposes.
              1. The quotes remain true and the posts above discuss what happens if you do NOT have the loan dealt with at the time of settlement.

              2. I have not seen any settlement contract that includes any certainty where you deal with the loan (write off/repayment) AFTER the settlement.

              If telling the truth is scaremongering - guilty.

              If you think this information is being shared for "commercial purposes" I invite you to give us all some proof of your qualifications and analysis of why it is incorrect.
              Best Forum Adviser & Forum Personality of the Year 2018.

              (No, me neither).

              Comment


                #37
                Originally posted by webberg View Post
                1. The quotes remain true and the posts above discuss what happens if you do NOT have the loan dealt with at the time of settlement.
                Logistically, how does it work to ensure the loan is dealt with at the time of settlement?

                The trust asks for proof of settlement with HMRC and then takes care of writing off the loan (or whatever it is they purport to do). I do not have any faith in my trust/trustee at all, so how does one protect themselves to ensure this is done before actually settling?

                Comment


                  #38
                  Originally posted by webberg View Post
                  A write off is taxable under Part 7A.
                  Yes

                  Originally posted by webberg View Post
                  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.
                  I've mentioned s554Z5 a number of times, but you've declined to explain why you think it does not apply. That's obviously your choice.

                  But for people who want to play along at home (or with their own tax adviser), let's pretend:

                  1. A loan of £10,000 was made to you by an EBT a long time ago (say in 2007/08).

                  2. No tax was paid at the time. You were a 20% taxpayer then and are now a 40% taxpayer.

                  3. You settle with HMRC now and pay £2,000 of tax (20% x £10,000) before 6 April 2019.

                  4. The loan is:
                  (a) waived immediately after you've settled and paid the tax, or

                  (b) never waived (so "outstanding" on 5 April 2019), or

                  (c) waived after 5 April 2019 (e.g. 1 January 2022)

                  So the potential tax under the employee disguised remuneration rules are:
                  (a) on waiver immediately after you've paid the tax

                  (b) on 5 April 2019

                  (c) on 5 April 2019 and on 1 January 2022

                  On each of those dates, there is the potential for a tax charge because there is a relevant step on waiver or a deemed one on 5 April 2019.

                  Now I say that s554Z5 ITEPA 2003 applies to reduce the amount taxed to nil in each of those dates (i.e on waiver or on 5 April 2019).

                  Webberg does not agree with that but he's not explained why.

                  Again, for those that want to play along at home, here's what the double tax relief rules in s554Z5 says:

                  554Z5 Overlap with money or asset subject to earlier tax liability
                  (1) This section applies if there is overlap between—
                  (a) the sum of money or asset (“sum or asset P”) which is the subject of the relevant step, and

                  (b) a sum of money or asset (“sum or asset Q”) by reference to which, on an occasion that occurred before the relevant step is taken, A became subject to a liability for income tax (“the earlier tax liability”).
                  (2) But this section does not apply where—
                  (a) the earlier tax liability arose by reason of a step within section 554B taken in a tax year before 6 April 2011, and

                  (b) the value of the relevant step is (or if large enough would be) reduced under paragraph 59 of Schedule 2 to FA 2011.

                  (3) Where either the payment condition or the liability condition is met, the value of the relevant step is reduced (but not below nil) by an amount equal to so much of the sum of money, or (as the case may be) the value of so much of the asset, as is within the overlap.

                  (4) The payment condition is that, at the time the relevant step is taken—
                  (a) the earlier tax liability has become due and payable, and

                  (b) either—
                  (i) it has been paid in full, or

                  (ii) the person liable for the earlier tax liability has agreed terms with an officer of Revenue and Customs for the discharge of that liability.

                  (5) The liability condition is that, at the time the relevant step is taken, the earlier tax liability is not yet due and payable.

                  (6) For the purposes of this section there is overlap between sum or asset P and sum or asset Q so far as it is just and reasonable to conclude that—
                  (a) they are the same sum of money or asset, or

                  (b) sum or asset P directly, or indirectly, represents sum or asset Q.
                  (7) Subsection (8) applies where—
                  (a) the earlier tax liability arose by virtue of the application of this Chapter by reason of an earlier relevant step (the “earlier relevant step”), and

                  (b) reductions were made under this section to the value of the earlier relevant step.

                  (8) Where this subsection applies, sum or asset P is treated as overlapping with any other sum of money or asset so far as the other sum of money or asset was treated as overlapping with sum or asset Q for the purposes of this section.

                  (9) In subsection (1)(b)—
                  (a) the reference to A includes a reference to any person linked with A, and

                  (b) the reference to a liability for income tax does not include a reference to a liability for income tax arising by reason of section 175 (benefit of taxable cheap loan treated as earnings).

                  (10) In subsection (3) the reference to the value of the relevant step is a reference to that value—
                  (a) after any reductions made to it under section 554Z4, this section or 554Z7, but

                  (b) before any reductions made to it under section 554Z6 or 554Z8.

                  (11) For the purposes of subsection (4)(b)(i) a person is not to be regarded as having paid any tax by reason only of making—
                  (a) a payment on account of income tax,

                  (b) a payment that is treated as a payment on account under section 223(3) of FA 2014 (accelerated payments), or

                  (c) a payment pending determination of an appeal made in accordance with section 55 of TMA 1970.

                  (12) See paragraphs 4(5) and (6) and 12(4) and (5) of Schedule 11 of F(No. 2)A 2017) for provision about the effect of subsection (3) in certain cases where the relevant step is within paragraph 1 of that Schedule.
                  If you don't like tax, the first thing to say is that looks a bit complicated. So let's simplify it a bit to say that (i) it was you who got the loan, (ii) and you settle between now and 5 April 2019, (iii) you pay the tax by 5 April 2019. So that simplifies s554Z5 as follows:

                  554Z5 Overlap with money or asset subject to earlier tax liability
                  (1) This section applies if there is overlap between—
                  (a) the [loan being waived / caught by the April 2019 loan charge], and

                  (b) [the making of the original loan] occurred before the relevant step [i.e. the loan being waived / caught by the April 2019 loan charge] is taken, [you] became subject to a liability for income tax (“the earlier tax liability”) [under the settlement you agree you had an earlier tax liability].
                  (2) [Not relevant as no earmarking]

                  (3) Where either the payment condition ..., the value [£10,000] of the relevant step [being the waiver one or the April 2019 one] is reduced (but not below nil) by an amount equal to so much of the [original loan, being £10,000] as is within the overlap [the whole £10,000 original loan overlaps entirely with the amount waived / outstanding on 5 April 2019].

                  (4) The payment condition is [that you've paid the tax on the settlement]

                  (5) [Not relevant as tax has been paid on the settlement]

                  (6) For the purposes of this section there is overlap between sum or asset P and sum or asset Q so far as it is just and reasonable to conclude that—
                  (a) they are the same sum of money or asset, or

                  (b) sum or asset P directly, or indirectly, represents sum or asset Q.
                  (7) [Not relevant as the original tax charge was not reduced]

                  (9) [Not relevant]

                  (10) [Not relevant]

                  (11) [Not relevant]

                  (12) [This just says to think about the April 2019 loan charge]
                  So that simplifies to this:

                  554Z5 Overlap with money or asset subject to earlier tax liability

                  (3) Where you've paid the tax under the settlement, the £10,000 value (of the waiver tax charge or the April 2019 one) being taxed now is reduced by the £10,000 you've already paid tax on
                  So that says that if you pay the £2,000 of tax under the settlement, you don't pay £4,000 of tax later on.

                  Now, I may be wrong. Or maybe I'm not. I'll let you guys decide that with the help of your tax adviser.

                  Just to be clear, what I have written applies in exactly the same way if you have agreed time to pay with HMRC by 5 April 2019. If you don't pay the tax (or agree time to pay) by 5 April 2019 then different double tax relief rules apply (you basically have to pay the higher of (i) the early tax plus interest, and (ii) the tax due on the waiver / April 2019 loan charge). None of what I have written applies to IHT.

                  If you want to read more about this on the forum, google "site:forums.contractoruk.com/ s554z5"

                  Comment


                    #39
                    Originally posted by Iliketax View Post
                    None of what I have written applies to IHT.
                    Would you care to expand on the application of IHT?

                    Comment


                      #40
                      Originally posted by DontSettle View Post
                      Would you care to expand on the application of IHT?
                      No thank you.

                      Comment

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