Settling and writing off loans

[Iter]

I think I read somewhere that HMRC want all information by Sep18 in order to calculate settlement before April next year. Am I right to assume that as long as the figures are agreed/ signed before April the LC will not apply? I guess September is an ideal time for HMRC to start calculations...

[Calmbeforethestorm]

The loan is not being treated as income. The reverse is happening.

In Rangers, the Judges decided that when the money fell due to the employee, it was taxable as income.

Subsequently the employee and employer must have agreed that some money (already taxable under section 62 ITEPA) would be paid to a trust (settled) and the trust would lend it back to the employee. This is a subsequent action to the time at which tax liability on the income arose.

This is the core of the conflict in the HMRC analysis for income tax and IHT.

For income tax, liability arises when the money becomes due.



For IHT purposes, HMRC claim that the money went to the trust and was loaned to you.

I think that those are mutually exclusive positions. HMRC disagree. the debate continues.

I get where you're coming from on this.Inevitably there will be a legal case on this...HMRC cant have it both ways....or its double taxation if your loan amounts total over £325k( or do they intend this anyway)...more fuel for the fire to go to MP about....still awaiting a response from HMRC itself rather than Mel Stride.....he is already on board with the retrospectivity angle and an influential MP being a whip.

Do you think that , even if loans were repaid and NOT caught by earmarking, they would still assess income tax as in the settlement in any event....thus making repayment of loans a total none option?

[Dmac]

I think I read somewhere that HMRC want all information by Sep18 in order to calculate settlement before April next year. Am I right to assume that as long as the figures are agreed/ signed before April the LC will not apply? I guess September is an ideal time for HMRC to start calculations...

I believe HMRC require all your figures (your own calculations) by the end of September 2018, with the due date for signing the settlement agreement (and paying the money across) being 05/04/2019 - then the LC will not apply.

If in doubt though, check with HMRC by phone

[Lurker99]

I believe HMRC require all your figures (your own calculations) by the end of September 2018, with the due date for signing the settlement agreement (and paying the money across) being 05/04/2019 - then the LC will not apply.

If in doubt though, check with HMRC by phone

Need to agree by April 19, not pay money.

[webberg]

I get where you're coming from on this.Inevitably there will be a legal case on this...HMRC cant have it both ways....or its double taxation if your loan amounts total over £325k( or do they intend this anyway)...more fuel for the fire to go to MP about....still awaiting a response from HMRC itself rather than Mel Stride.....he is already on board with the retrospectivity angle and an influential MP being a whip.

Do you think that , even if loans were repaid and NOT caught by earmarking, they would still assess income tax as in the settlement in any event....thus making repayment of loans a total none option?

It's not double taxation.

If you had money and it's taxable, it's income tax.

If you have "chosen" to place some of your wealth into trust, then it comes with IHT implications.

You cannot argue that it's not income and also that it's not a redirection of your wealth.

I'll not comment on Mr Stride.

I find it hard to imagine how you can repay a loan and avoid earmarking. Certainly HMRC would require absolute proof that you would never see the money ever again. Either you get taxed as income, or the loan charge hits, or if you genuinely show no earmarking, you get taxed later.

Repaying loans is not by any measure a sensible strategy in my opinion.

[ScottW]

Welcome to Alice in Wonderland, HMRC's explanation of application of Inheritance Tax to a written off loan:

'Under Part 7A ITEPA 2003, a loan write off is a “relevant step”. The value of that step is an amount charged to Income Tax (IT). In the first instance then, there is no Inheritance Tax (IHT) on the write off (release) of the loans. However, that is not the case where there is an earlier tax charge. An earlier tax charge is a tax charge that arises before the relevant step. There is no charge to IT on the write off of the loans because of an earlier tax charge, therefore IHT is charged on the full amount.'

[Iliketax]

Welcome to Alice in Wonderland, HMRC's explanation of application of Inheritance Tax to a written off loan:

'Under Part 7A ITEPA 2003, a loan write off is a “relevant step”. The value of that step is an amount charged to Income Tax (IT). In the first instance then, there is no Inheritance Tax (IHT) on the write off (release) of the loans. However, that is not the case where there is an earlier tax charge. An earlier tax charge is a tax charge that arises before the relevant step. There is no charge to IT on the write off of the loans because of an earlier tax charge, therefore IHT is charged on the full amount.'

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

[Calmbeforethestorm]

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

Love it.

[ScottW]

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

Your reply is defo better than my 'WTF?' so, random stranger or not, I'm using (some of) it.

[tomtastic]

I believe HMRC require all your figures (your own calculations) by the end of September 2018, with the due date for signing the settlement agreement (and paying the money across) being 05/04/2019 - then the LC will not apply.

The first I've heard of this was yesterday when HMRC sent a letter stating "I believe you've used a tax avoidance scheme", but no details of how much tax they believe I owe or years affected, etc. Neither is there a deadline of September, only a plea to settle with them before April 2019.