Paying off the Loan
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  1. #11

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    Quote Originally Posted by Loan Ranger View Post
    That sounds like earmarking to me.

    For HMRC to accept a repayment, as being outwith the DR rules, both you and the trustees would probably have to give a declaration that there was no intention for you to gain any future benefit from the money.

    If you subsequently did gain an actual benefit, even from only a small portion of the money, HMRC would almost certainly allege earmarking.

    I'm not saying it's impossible but I wouldn't trust any advice from a promoter.
    That's how I see it also.

    The repayment itself is okay. It has to be, to allow HMRC to make the claim that the legislation isn't retrospective. As they have stated if you don't want to pay the charge you can pay off the loan.

    But why would anyone repay the loan when it is going to cost more than the loan charge, unless there is some earmarking going on? So there would be intense scrutiny.

    However, if the repayment and thus the "notion" of a earmarking takes place after a person is no longer regarded as a resident for tax purposes (but before April 2019), then I think there is a reasonable chance that HMRC will regard it as too complex to pursue.

    Both the Trust and the person could resist an enquiry or a request for a declaration by referring HMRC to the tax authority in the country where they are now tax resident.

    Even if the Trust provided the information, HMRC would have to claim that leaving the county was tax avoidance, which isn't unlawful by itself. Except when the law says that tax avoidance is unlawful, which the quoted text sort of says.

    Feels like Russian Roulette.

  2. #12

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    Quote Originally Posted by Loan Ranger View Post
    That sounds like earmarking to me.

    For HMRC to accept a repayment, as being outwith the DR rules, both you and the trustees would probably have to give a declaration that there was no intention for you to gain any future benefit from the money.

    If you subsequently did gain an actual benefit, even from only a small portion of the money, HMRC would almost certainly allege earmarking.

    I'm not saying it's impossible but I wouldn't trust any advice from a promoter.
    It would likely depend on the circumstances , not only contractors are caught by the LC . Anyone with a FURB,EFRB, EBT or anything else with a loan structure could be caught.In some of these cases the Trustees have other funds which they may still hold for beneficiaries which will ultimately be handed to them.

  3. #13

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    Quote Originally Posted by ReadyTainted View Post
    That's how I see it also.

    The repayment itself is okay. It has to be, to allow HMRC to make the claim that the legislation isn't retrospective. As they have stated if you don't want to pay the charge you can pay off the loan. Yes, the repayment option is just an artifice.

    But why would anyone repay the loan when it is going to cost more than the loan charge, unless there is some earmarking going on? So there would be intense scrutiny.

    However, if the repayment and thus the "notion" of a earmarking takes place after a person is no longer regarded as a resident for tax purposes (but before April 2019), then I think there is a reasonable chance that HMRC will regard it as too complex to pursue. Yes, that might fly.

    Both the Trust and the person could resist an enquiry or a request for a declaration by referring HMRC to the tax authority in the country where they are now tax resident.

    Even if the Trust provided the information, HMRC would have to claim that leaving the county was tax avoidance, which isn't unlawful by itself. Except when the law says that tax avoidance is unlawful, which the quoted text sort of says.

    Feels like Russian Roulette.
    I'd like to see HMRC trying to explain, to a foreign tax authority, how repaying a loan is a taxable event.

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    HMRC's position, if you are not physically resident in the UK for tax purposes in 2018/19, is covered in the legislation.

    In essence, HMRC say that if you were resident in the period in which the loan was made, then that is enough to make the charge in 2018/19 stick.

    To my mind, that is unprecedented and is certainly an area that will attract challenge both in the UK and in foreign courts should collection be attempted.

    In addition, HMRC might argue that the loans represent a "UK source". If so, then it matters not where you are resident as UK tax is due.

    Again, that presents difficulties for HMRC in that they are very keen to argue that if the employer is "offshore", that prevents them from raising assessments on them and therefore you are liable.

    So you may have an offshore employer/lender who is not liable for tax, but your loan is from a UK source. Squaring that circle will also lead to a number of challenges I suspect.

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    For the loan charge itself, I can see that it may not matter where you're resident on 5/4/19 because it's treated as earnings and, supposedly, UK earnings are taxable wherever you reside in the world.

    However, the question here is what happens if you're non-resident and repay the loan before 5/4/19?

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    Quote Originally Posted by Loan Ranger View Post
    For the loan charge itself, I can see that it may not matter where you're resident on 5/4/19 because it's treated as earnings and, supposedly, UK earnings are taxable wherever you reside in the world.

    However, the question here is what happens if you're non-resident and repay the loan before 5/4/19?

    If you repay the loan there is no problem....save only on how to get the money back

    This depends on your scheme, in mine, I have drawdown from funds over the last 5 years and declare as I do.There is no problem.

    Problem for me arises because I borrowed money from the scheme 13 years ago and didnt repay that , as at the time there was no need to declare or repay it.Now there is.

    I can repay my loans ( if I had the cash) and then draw it down at a later date.

    If I went abroad, then LC still applies because its too late to leave the country this year, but its a possibility for the future....so i have to settle or repay. Simples.

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    I think that if you are non res and repay the loan, then the anti avoidance rules discussed above will be just as applicable.

    If it is a genuine repayment and money is later earmarked or paid, whilst non resident, then perhaps it will fall outside Part 7A (which has an underlying assumption of UK tax resident status).

    Quite how you prove that situation I don't know.

  8. #18

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    Interesting that HMRC seem to insist that the LC isn't retrospective, because you are free to repay the loan to avoid the charge.

    What HMRC haven't accounted for is the situation in which the scheme provider is long gone, and where the Trust no longer holds any information on the scheme users or of the loans. So in effect, I am in a position where I cannot repay the loan.

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    Quote Originally Posted by webberg View Post
    I think that if you are non res and repay the loan, then the anti avoidance rules discussed above will be just as applicable.

    If it is a genuine repayment and money is later earmarked or paid, whilst non resident, then perhaps it will fall outside Part 7A (which has an underlying assumption of UK tax resident status).

    Quite how you prove that situation I don't know.
    Definately a bit of a grey area Webberg, I am fairly confident that, in my case at least, I can repay without falling foul of earmarking whilst in the UK and wouldn't fall foul of earmarking in the future if the money was taken back and declared at the same time... so there is scope to spread it out over time at lower rates...but this is because the Trustees hold funds for all beneficiaries and they are only "earmarked" as they are paid back.Much in the same way that a company pension fund operates.

    It would be interesting to see what would happen if I left the Uk in , say 5 years, and then withdrew the funds whilst resident outside the UK. Its a fairly extreme option....but beats bankruptcy I guess.

    I have a wealth of expensively obtained tax counsel's opinion on this subject which Ill share with you if you care to PM me.

  10. #20

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    Quote Originally Posted by Calmbeforethestorm View Post
    the Trustees hold funds for all beneficiaries and they are only "earmarked" as they are paid back
    The other issue is whether you can trust the Trustees.

    The trustees of the Montpelier scheme requested repayment of 10% of the loans in 2016. Some people did repay but they haven't been able to get any of the money back since. The trust deed gave the trustees discretion as to how they could use the funds, so they may have spent it.
    Last edited by Loan Ranger; 12th July 2018 at 16:22.

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