Reply to: Repaying Loan

[webberg]

Nobody that really matters is likely to slag you off.

So is Weberg's view incorrect? He does qualify it to be fair, with "in my opinion". The only way to be sure is delve into your pockets and stump up some cash.

I think that the view expressed has to viewed in the context of having very little information and against a background of some clarity still required from HMRC.

I have some reasons for saying what I did but they are for my paying clients at the moment.

[ConfusedEasily]

Right, time to let people slag me off...

Nobody that really matters is likely to slag you off.

So is Weberg's view incorrect? He does qualify it to be fair, with "in my opinion". The only way to be sure is delve into your pockets and stump up some cash.

[Loan Ranger]

Right, time to let people slag me off...

No-one should slag you off.

You play a bit of a devil's advocate role here, and get people to wake up and smell the coffee, which is what is needed.

[Iliketax]

My own circumstance is that I am a not UK resident, and there are many in a similar position to me. I have copied the post below from the Big Group thread as this is relevant:

While it might be relevant, it might not be right.

When you ask your tax adviser about your own personal circumstances, ask them about how the residence rules for DR apply (in s554Z4). In particular, ask them what year the step would be "for". You could point your professional adviser to HMRC's explaination of their thinking on residence here: https://www.gov.uk/hmrc-internal-man...anual/eim45720

You might ask them why your facts are different to their example "Example: relevant step after A has emigrated" (with the difference being that the relevant step is not the actual loan but the deemed loan that is treated as being made to you on 5 April 2019).

If they say you are not resident in the UK at the time and so you don't pay tax then you might ask about the Nichols v Gibson case. Although, this is about termination payments, the DR charge still "counts as employment income" in the same way. HMRC explain their thinking on it here: https://www.gov.uk/hmrc-internal-man...anual/eim13050

There's an HMRC webinar happening on 1 May (https://forums.contractoruk.com/hmrc...ay-2018-a.html) where you can ask them about this and see what they say (you can send questions in advance). But just to be clear, what they say may not be right.

Now some people will say I've put too many links to HMRC's manuals here and that you shouldn't rely on them or believe them. That's fine by me. But I think its helpful in that it allows you to have an informed discussion with your tax adviser based on your personal circumstances.

Just to be clear, I'm not saying that in your personal circumstances you will have to pay the April 2019 loan charge or not. That something for you and your tax adviser based on your own circumstances. How concerned you are about this will also depend on whether you are planning to come back to the UK.

Right, time to let people slag me off...

[Loan Ranger]

My own circumstance is that I am a not UK resident, and there are many in a similar position to me. I have copied the post below from the Big Group thread as this is relevant:

Yes, that might change things.

There is also the question of whether HMRC can even touch you where you live. Unless there is a treaty or agreement which allows the UK to request the assistance of your tax authority to collect debts, there may be little HMRC can do to enforce the LC.

It's worth finding out.

[Harrai]

My circumstance is that I am not a UK resident, and there are many in a similar position to me. I have copied the post below from the Big Group thread as this is relevant:

This is a BG thread so I hope nobody minds that I pitch in.

If I understand the position correctly, a loan drawn whilst in the UK and from a trust connected to an employer is to be repaid in cash.

In itself, provided this is not part of a tax avoidance scheme, then the DR charge in 2019 will not apply.

The distribution of funds from the trust will be subject to the rules relating to transactions between trusts and beneficiaries.

A non UK trust paying an amount to a non UK resident beneficiary should not attract tax.

If the trust is deemed to be in the UK, then any growth on the repaid loan funds, may be subject to income tax.

It's possible that - if the trust is deemed to be in the UK and/or the distribution might be deemed to be a relevant step in Part 7A - that a charge applies. However that would be probably on the employer (presumably long gone) and I think there is almost no scope to transfer that to a non resident individual.

So apologies if I've stepped on toes, but in the circumstances described I think it would be difficult for a non resident individual to have a liability to UK tax on the DR charge or anything else.

(You will notice that those with any HMRC experience tend to use words like "difficult, unlikely, almost impossible" rather than "definitely not". This is unfortunately not because we don't want to be decisive but rather because we're used to our overly complex tax code throwing up odd answers from time to time and HMRC often have their own interpretation which seems often to come from their preferred answer, i.e. pay tax - now let's think of a reason why).

My personal view is that you have no liability.

[Loan Ranger]

That's not right. Have a look at para 35A(5) here (the one that starts "the fourth condition") of this: https://www.legislation.gov.uk/ukpga...aph/10/enacted

Thanks for correcting.

The bottom line is, it would be a hell of a gamble repaying the loans.

And actually, it wouldn't make any sense if the repayments are going to be used to fund a pension. You may as well make pension contributions in 2018/19 to relieve the LC, which would require less money than repaying the loans and would be compliant. It would also mean you wouldn't have to place your faith in the Trustees.

[Iliketax]

Thanks for the responses so far.

I am not an accountant, but my understanding is that HMRC have stated that loan should be repaid in cash for it to be considered as cleared.

Technically, the legislation says "money" rather than "cash".

The trust could then invest the funds into a pension or similar. This would be an adequate answer to the motivation/purpose if HMRC ask.

HMRC won't care what your motivation is as it wouldn't stop you getting a tax charge. Ask your accountant about s554B (the earmarking thing mentioned earlier on the thread) and why s554R(1)(c) would stop s554R applying.

[Iliketax]

Suppose someone repaid the loans before 5/4/19.

Presumably, there would be no requirement to disclose anything under LC19 because there would no longer be any outstanding loans?

That's not right. Have a look at para 35A(5) here (the one that starts "the fourth condition") of this: https://www.legislation.gov.uk/ukpga...aph/10/enacted

[Harrai]

Thanks for the responses so far.

I am not an accountant, but my understanding is that HMRC have stated that loan should be repaid in cash for it to be considered as cleared. The trust could then invest the funds into a pension or similar. This would be an adequate answer to the motivation/purpose if HMRC ask.

[Loan Ranger]

Suppose someone repaid the loans before 5/4/19.

Presumably, there would be no requirement to disclose anything under LC19 because there would no longer be any outstanding loans?

Suppose, after 30/9/19, HMRC wrote to the person querying the loans, and the person replied saying that they had repaid them.

Presumably, HMRC would ask questions about the purpose/motivation behind the repayment. They could also contact the trustees.

This is when it could start to get tricky.

[webberg]

I'd agree with Iliketax.

Repaying the loan in cash and having none of those funds returned to you would give exemption from the 2019 charge.

As the poster says though, that means paying ALL the loan.

If subsequently a payment from the trust is made to you it would be taxable either as trust distribution or as a relevant event under Part 7A ITEPA.

(We have had HMRC suggest both might happen but I think that is very unlikely).

It seems to be grossly unfair that a trustee acting in accordance with a trust deed written years ago and complying with the law on trusts in making a distribution, should be deemed to be assisting you in tax avoidance. I think we will see a case on this eventually (2026) but who wants to be first?

The key question here is do you trust the trustee?

[Loan Ranger]

If the loan was repaid to the trust and the trust then invested the funds else where (of which there are multiple options) I do not see why HMRC would have an issue since the tax would be paid when extracting the funds at a later date.

According to one of the professional advisors (Iliketax) on these forums, this would be caught by "earmarking" provisions.

https://forums.contractoruk.com/hmrc...ml#post2527048

[Harrai]

My understanding is that the loan charge only becomes enforceable if the loan is outstanding next year.

If the loan was repaid to the trust and the trust then invested the funds else where (of which there are multiple options) I do not see why HMRC would have an issue since the tax would be paid when extracting the funds at a later date.

[Loan Ranger]

So under what conditions can the loan be repaid?

Repaying the loan would cost at least twice as much as paying the LC (assuming 40 or 45% tax).

Why would anyone do that, unless they had an ulterior motive?

Anyway, that's the way HMRC will look at it.