Originally posted by SimonJones
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Income tax and IHT have entirely separate codes.
Let's look at IT. Here the key argument is that whatever legal form the transfer of value/cash took from contractee to you, it's effectively income of some description. The case law principles that HMRC want to run require that certain steps and legal forms are ignored in arriving at the analysis that you have received income. Unless that income is exempt in some form, it's taxable on you. These principles (purposive interpretation of the statute applied to realistic view of the facts) are still developing but are hard to overcome.
For IHT, there is no such purposive interpretation. IHT legislation creates a fictional, legal world in which form is still at least as important as substance. In that world, a loan is a loan if the document says so. Therefore a company that employed you, placed funds in a trust of which you are beneficiary. The trust funds are regarded as yours for IHT purposes. You placed those funds outside the trust by making a loan (to you). The value of your estate has therefore fallen potentially, dependent upon your view of the ability to recover the loans.
If the loans are written off, then your estate is permanently reduced and an IHT charge arises. If the loans are repaid and the the trust dissolved, with funds coming back to you, arguably your estate is increased and that will trigger an exit charge (IHT) from the trust.
So not double taxation.
On the one hand you have received disguised income which is subject to income tax (tax on earnings).
On the other you have manipulated your estate, trigger tax charges on your wealth/estate, (tax on capital).
On general principles, paying tax on death on wealth accumulated through post tax income IS double taxation. that however is a matter of political philosophy rather than tax statute.
The above argument is as explained to me by HMRC. I'm not convinced. I think the argument that an analysis for one tax MUST apply to all is powerful and therefore HMRC trying for both taxes is incorrect. Unless HMRC cave on this (I'm trying) expect a litigation.
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