Edge EBT thread

[jbeer]

IHT arises on each 10th anniversary or prior event.

In this case, the event is an assumption by HMRC that the loans are now worth less than when they were made and that triggers a charge under section 72.

Anniversary and exit charges are generally mitigated by the NIL rate band (currently £325k) but section 72 charges are not. Hence a liability.

So there is no chance of deferral until death.

HMRC's only consistency is inconsistency. Some Edge users have IHT calculations and some not. Might be sensible to ask HMRC about your personal situation?

HMRC is already challenging the Edge scheme, it's just that it's slow to come to a head. That may be because HMRC is pushing on other schemes because they regard Edge as "strong", or it may be the luck of the draw, or it may be a piece of management on behalf of whomever is advising the former members.

Either way, if HMRC lose the "loans are income" point, the legal fact remains that a trust has loaned you money and that you are probably settlor of that trust and as such there is a potential IHT charge.

Not sure I follow ? Section 72 applies (specifically 72(2)(c) on loan write off regardless of whether the loans are worth less than they were, i.e. its the write off that is caught by this section (and as you say the nil rate band does not apply) If the loans are not written off until after death then surely there is a chance of "deferral until death" ? - which could possibly mean your children getting hit with a big tax bill.

[Iliketax]

Not sure I follow ? Section 72 applies (specifically 72(2)(c) on loan write off regardless of whether the loans are worth less than they were, i.e. its the write off that is caught by this section (and as you say the nil rate band does not apply) If the loans are not written off until after death then surely there is a chance of "deferral until death" ? - which could possibly mean your children getting hit with a big tax bill.

My understanding is that s72(2)(c) applies where there is a reduction in the value of property held by the trust otherwise than by means of a payment. So if a £100 loan still had a £100 value then the tax charge would arise when the loan is written off. But if the value of the receivable fell when the loan was made, that would be the time of the tax charge.

As an example of the fall in value, let's pretend I walk down the road and see someone I don't recognise. I say "do you want to borrow £100 interest-free for as long as you like? Just give me your name and address and I'm not really bothered if you can afford to repay it or what you spend it on". She grabs my money, writes her name and address on a scrap of paper and gives it to me. I don't have my £100 any more but I do have the right to receive that £100. Now how much would you be prepared to pay me for the right to receive the £100 from her? Let's say you like a gamble and will give me £1. That's a £99 loss in value.

[jbeer]

My understanding is that s72(2)(c) applies where there is a reduction in the value of property held by the trust otherwise than by means of a payment. So if a £100 loan still had a £100 value then the tax charge would arise when the loan is written off. But if the value of the receivable fell when the loan was made, that would be the time of the tax charge.

Agree. My CLSO states the loans have not fallen in value, so then s72 only applies at loan write off.

[jbeer]

If IHT is a valid concern then it could become more of a problem than the Income Tax HMRC state is owed.
If it would be possible to defer the IHT payment until Death then this would probably have the effect of reducing any estate remaining - solution for some ?
That's a lot of tax accruing at 1% tax per Year until write-off including Interest if payment due dates are applicable and not met. So, it would be best trying to wrestle this issue now before amounts become astronomical

I am uncertain on the subject - if HMRC lost / dropped their case against the Edge arrangement then would each Member still be liable for IHT as the scheme used a Trust. - the longer it takes for HMRC to challenge the Edge scheme the more IHT that becomes due

This is definitely a valid concern. These loans run for 80 years but if you die the loan write off is triggered and the charge will be deducted from your estate. Unless you don't care about this then the sooner the loans are written off the better. The bill is increasing with each passing month. As you say, unless this is dealt with, the bill could be much worse than the income tax due.

[IPMAN]

This is definitely a valid concern. These loans run for 80 years but if you die the loan write off is triggered and the charge will be deducted from your estate. Unless you don't care about this then the sooner the loans are written off the better. The bill is increasing with each passing month. As you say, unless this is dealt with, the bill could be much worse than the income tax due.

So does the current probate process ensure the IHT from standing loans are settled at that point in time?

[jbeer]

I believe so.

[SimonJones]

IHT

It appears that IHT will be applied at some point whether its under s86 or s72.

S86 will be triggered when one dies (regardless of winning the case or not).
Just not sure how it will be calculated, will it be: (outstanding loan + assets) - 325K = IHT due on remaining amount.

Under S72, triggered on write-off (as per CLSO in my case).

So in the long, it sounds like a better option to write-off these loans now rather than wait for many years where IHT can seriously get huge.

I wonder whether HMRC would accept to only settle the IHT part of the settlement for now if one is interested.

Would really appreciate should someone can shade some light on this matter.

[regron]

Are you still in discussions with HMRC about your personal CLSO offer ? The deadline to agree was the 30th September.

[SimonJones]

Are you still in discussions with HMRC about your personal CLSO offer ? The deadline to agree was the 30th September.

No!

I was just wondering whether it would be possible to just settle the IHT element (to stop IHT accruing).

For the rest of the tax due, wait for the outcome.

[regron]

No!

I was just wondering whether it would be possible to just settle the IHT element (to stop IHT accruing).

For the rest of the tax due, wait for the outcome.

Ah, ok. Who knows with HMRC ! They probably don't even know themselves.