Reply to: non-spouse director

[TheFaQQer]

Most loans don't have a link to earnings. Inflation isn't the right term in the traditional sense, but inflation of earnings erodes the cost of the loan.

Current loans attract an interest rate of 3.9%. So you need some hefty earnings inflation to erode the cost of the loan. And if you managed that, then you'd be much more able to repay the loan rather than have to cobble together some scheme to avoid having to repay it

[BigRed]

How can inflation erode the value of the loan? Prior to 2012, loans had interest added every year at the same rate as inflation. Since then, the rate charged has been above the rate of inflation so there is no concept of the value of the loan being eroded.

Most loans don't have a link to earnings. Inflation isn't the right term in the traditional sense, but inflation of earnings erodes the cost of the loan.

[TheFaQQer]

They aren't really loans though are they? They are tightening up on things but the general expectation was that you could defer payment until inflation had eroded the value. If you do a quick search you will find around a third have never been repaid anything and chasing people who have emigrated smacks of political bluster. I got a grant to do my degree in the expectation that I would become a higher rate tax payer and contribute to the economy. Government continually tinker with things, to the delight of contractors who get paid to develop systems to support the new rules. It will be interesting to see how the new legislation on contracts with public sector will pan out.

How can inflation erode the value of the loan? Prior to 2012, loans had interest added every year at the same rate as inflation. Since then, the rate charged has been above the rate of inflation so there is no concept of the value of the loan being eroded.

Currently, it's about 55% that aren't being repaid in full because people aren't earning enough to do so - under the current plan you have to be earning £22k and then have 30 years to pay it off (£17k or 25 years if you're on the same plan as the OP, or when you hit 65 for the remainder).

However, that doesn't mean that there is no expectation to repay the loan if you earn above the threshold.

[BigRed]

When one takes out a loan, there is generally an expectation that you will have to repay that loan (dodgy schemes excepted).

They aren't really loans though are they? They are tightening up on things but the general expectation was that you could defer payment until inflation had eroded the value. If you do a quick search you will find around a third have never been repaid anything and chasing people who have emigrated smacks of political bluster. I got a grant to do my degree in the expectation that I would become a higher rate tax payer and contribute to the economy. Government continually tinker with things, to the delight of contractors who get paid to develop systems to support the new rules. It will be interesting to see how the new legislation on contracts with public sector will pan out.

[TheCyclingProgrammer]

This ^^
So you really need to re-work B to show that you have a saving of £1300 quid but giving half your income away for it.... unless it's coming back to benefit you somehow.......

Maybe OP should just stop beating around the bush.

If they intend to give the shares to an unmarried partner then their plan could be feasible if they are willing to take the risk that they wouldn't be caught by the settlements legislation. I took this risk when I gave my wife shares before we were married but I'm reasonably confident I'm not caught (but I did spend ******* ages reading and researching the legislation) because I don't receive the dividends (not even into a joint account) and the shares were given unconditionally. But there is no established case law here and may not be unless HMRC decide to start pursuing income shifting again.

They would of course need to tackle the CGT issue though which would need a company valuation and probably extra accountancy fees.

The fact that HMRC don't seem to pursue this that aggressively these days (barring the odd exceptional case around this like waivers) could be in OPs favour.

If they were actually planning to give the shares to a friend or family member then I can't see what possible advantage that would have for them unless they did intend for the dividends to make their way back to them somehow as NLUK said.

Personally I think the whole thing just to save paying off a student loan is stupid.

[northernladuk]

If you're giving the shares away without strings attached and the recipient gets to keep all of their dividends then great, you're unlikely to be caught as you no longer benefit or retain any interest in those shares or the dividends.

The only problem is you've just given a chunk of your potential income away for nothing, all to avoid paying off student loan. If said recipient is a live-in long term partner then this probably isn't a issue but otherwise your plan falls apart a bit doesn't it?

This ^^
So you really need to re-work B to show that you have a saving of £1300 quid but giving half your income away for it.... unless it's coming back to benefit you somehow.......

[TheCyclingProgrammer]

As TF says, directorship isn't really relevant here and frankly neither is the student loan thing.

As I said before its nothing to do with spouses being "exempt". The settlement legislation bites if a) there is a settlement and b) the settlor OR THEIR WIFE/CIVIL PARTNER retains an interest of benefits from the settled property (including derived property like share dividends).

It would be impossible to give shares to your spouse without being caught by the above rule as they would clearly benefit so that's why the spouse exemption was added. If it applies it basically takes the spouse out of the equation, so you would only be caught if the settlor themselves retain an interest. The Arctic case determined when the spouse exemption should apply and HMRC have their own guidance regarding whether or not the settlor retains an interest and generally they deem this to be situations where the shares are given away with conditions attached to them (eg shares wild be returned or dividends would make their way back to the settlor).

So on that basis if you give shares to a non spouse, so long as you the settlor do not retain an interest you won't be caught.

So all that really matters here is who are you giving the shares to and what will happen to the dividends that get paid?

If you're giving the shares away without strings attached and the recipient gets to keep all of their dividends then great, you're unlikely to be caught as you no longer benefit or retain any interest in those shares or the dividends.

The only problem is you've just given a chunk of your potential income away for nothing, all to avoid paying off student loan. If said recipient is a live-in long term partner then this probably isn't a issue but otherwise your plan falls apart a bit doesn't it?

[TheFaQQer]

UK student loans: 'we will trace and prosecute borrowers who don't pay' | UK news | The Guardian

[northernladuk]

Try starting with the basics before you move onto messing around like this.

Being a director has nothing to do with shareholding or the settlements legislation.

Why let that nonsense get in the way of a bit of good tax evasion.....

[TheFaQQer]

@ TheFaQQer

non-spouse director is not irrelevant form what ive read if the added director was a spouse i would be exempt under settlements legislation as long as the money reasonable was not going to come back to me (which is fine). the only problem is when its non-spouse the HMRC can take a view whether the director is fee earning or not

Try starting with the basics before you move onto messing around like this.

Being a director has nothing to do with shareholding or the settlements legislation.

[northernladuk]

On to more important things though....

Damien.....

Have you taken out your IPSE+ Membership yet. They have a load of resources that might have helped here as well as all the cover they offer and of course the discounts through the Advantages scheme...

And make sure you have your QDOS products. PI/PL insurance, TLC35, IR35 contract reviews and the like...

[damien3]

@ TheFaQQer

non-spouse director is not irrelevant form what ive read if the added director was a spouse i would be exempt under settlements legislation as long as the money reasonable was not going to come back to me (which is fine). the only problem is when its non-spouse the HMRC can take a view whether the director is fee earning or not

[TheFaQQer]

my opionion its not a turn of phrase it's just savings which i'm sure everyone can appreciate

When one takes out a loan, there is generally an expectation that you will have to repay that loan (dodgy schemes excepted).

So to see a repayment of a loan that you voluntarily took out as "penalizing" you is something that is (to be frank) stupid. Almost as stupid as giving away half of your business to try to avoid repaying the loan that you took out.

It's not "savings", it's "defrauding the taxpayer" - I'm not convinced that everyone can appreciate your position.

[northernladuk]

@northernladuk i would put figures at the bottom of scenario B if i knew at all what they could be

Double it for the penalty, add about 20% compound interest to be on the safe side. Add a load of bank charges and the interest on the loan you may have to take out because you don't have the cash to pay everyone back. Add a figure that relates to 6 months or worry/pain while all this drags on and then see what you come out with. IMO it will be too much.....

[TheFaQQer]

IMO the non spouse director is questionable at best... artificial convoluted scheme to aggressively avoid the student loan it's just too much.

You probably won't listen but leave it alone....

p.s... at the bottom of scenario B you need to add a line showing the liabilities if you get caught so it doesn't look so rosy and tempting, other wise you might as well have an option C which is just fudge the books completely.

Non-spouse director is irrelevant - it's who owns the shares that are entitled to a dividend payment that's important. And since the OP hasn't seen the difference between the two, trying to fudge the system to avoid repaying the loan seems on the way to a world of pain to me.