Reply to: Settling and writing off loans

[kryten22uk]

One key question for you is if your trusts are still operating.

Mine have long been dead/closed so it does not matter. I have not ticked the box which means I have just delayed IHT for a bit.

A trust doesn't just die/close, if it's not "active"; it would need to settle all its creditors and debtors first. The fact that a trustee may have disappeared, doesn't mean loans have been written off.

In your specific case, did you get any confirmation that the trust has ended and your debt has been written off?

[passerby]

So for the statement I intend to have the loans released within 30 days of a settlement agreement which box needs to be ticked? 'Yes' or 'no'? And what are the implications of ticking either one?

Also, as per my post above, my HMRC settlement pack states "I can confirm that no inheritance tax liability arises on the payments received from these schemes".

One key question for you is if your trusts are still operating.

Mine have long been dead/closed so it does not matter. I have not ticked the box which means I have just delayed IHT for a bit.

If the trusts are operating you can ask them otherwise, you will need some professional advice. We are just freelance workers here.

[Lonerous]

And by not ticking the box they’ll hit you with IHT every 10 years or so until you die ( happy to be corrected!)

So for the statement I intend to have the loans released within 30 days of a settlement agreement which box needs to be ticked? 'Yes' or 'no'? And what are the implications of ticking either one?

Also, as per my post above, my HMRC settlement pack states "I can confirm that no inheritance tax liability arises on the payments received from these schemes".

[howcanigetyoualoan]

Loans remain loans and have to be written off at some point unless you want to pay them back.

The writting off is what they mean by releasing.

They will hit you with IHT if you tick the box from what I heard.

And by not ticking the box they’ll hit you with IHT every 10 years or so until you die ( happy to be corrected!)

[passerby]

Can anyone advise what the statement “I intend to have the loans released within 30 days of a settlement agreement” actually means? (NB: this is the exact text in my pack)

Or more to the point, what are the implications of ticking 'yes' or 'no'?

I've researched the topic on this forum and can't find a concrete answer.

As an FYI, my settlement pack also states "I can confirm that no inheritance tax liability arises on the payments received from these schemes".

Loans remain loans and have to be written off at some point unless you want to pay them back.

The writting off is what they mean by releasing.

They will hit you with IHT if you tick the box from what I heard.

[GreenMirror]

HMRC often give wrong advice by phone.

Best to get everything in writing. Or at least record the conversation.

[Lonerous]

Can anyone advise what the statement “I intend to have the loans released within 30 days of a settlement agreement” actually means? (NB: this is the exact text in my pack)

Or more to the point, what are the implications of ticking 'yes' or 'no'?

I've researched the topic on this forum and can't find a concrete answer.

As an FYI, my settlement pack also states "I can confirm that no inheritance tax liability arises on the payments received from these schemes".

[Dmac]

Ignotant HMRC

I rang HMRC asking this very question. The chap on the phone told me to tick "no" as I am asking for a repayment plan, rather than paying the full amount in 30 days. However, to my lay understanding, release of the loan and time to taken to repay feel like two separate issues.

I'd hate to tick the wrong box out of ignorance and end up facing further taxation or charges.

That just goes to show the total ignorance and lack of ability / training of HMRC staff. Terrifying, when they are dealing with our futures!

[Lonerous]

What does this mean, or what is the correct answer to:
“I intend to have the loans written off within 30 days of the settlement date” question on the settlement pack?

I rang HMRC asking this very question. The chap on the phone told me to tick "no" as I am asking for a repayment plan, rather than paying the full amount in 30 days. However, to my lay understanding, release of the loan and time to taken to repay feel like two separate issues.

I'd hate to tick the wrong box out of ignorance and end up facing further taxation or charges.

[TroyT]

I operated through Glen May for a number of years and I’m currently investigating the option of settling with HMRC as opposed to paying the tax on the Profit Share figures, then still being investigated and possibly incurring fines etc.

What does this mean, or what is the correct answer to:
“I intend to have the loans written off within 30 days of the settlement date” question on the settlement pack?

What does then even mean?
Glen May insist I did not receive loans. This adds further confusion to the situation.

What are the implications of having or not having the (alleged) loans written off and inheritance tax?

[tomtastic]

I believe HMRC require all your figures (your own calculations) by the end of September 2018, with the due date for signing the settlement agreement (and paying the money across) being 05/04/2019 - then the LC will not apply.

The first I've heard of this was yesterday when HMRC sent a letter stating "I believe you've used a tax avoidance scheme", but no details of how much tax they believe I owe or years affected, etc. Neither is there a deadline of September, only a plea to settle with them before April 2019.

[ScottW]

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

Your reply is defo better than my 'WTF?' so, random stranger or not, I'm using (some of) it.

[Calmbeforethestorm]

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

Love it.

[Iliketax]

Welcome to Alice in Wonderland, HMRC's explanation of application of Inheritance Tax to a written off loan:

'Under Part 7A ITEPA 2003, a loan write off is a “relevant step”. The value of that step is an amount charged to Income Tax (IT). In the first instance then, there is no Inheritance Tax (IHT) on the write off (release) of the loans. However, that is not the case where there is an earlier tax charge. An earlier tax charge is a tax charge that arises before the relevant step. There is no charge to IT on the write off of the loans because of an earlier tax charge, therefore IHT is charged on the full amount.'

And the reply might be (but delete last couple of sentences if doing so by email):

Thank you for your clear, concise reply but I think that there may have been a typo in the last sentence when you said "full amount". Did you mean to say "the reduction in the value of the trust's estate"? Assuming you did, I wonder if you could ask your valuation colleagues to confirm how much the loans receivable is worth so that the reduction can be determined. I would assume its market value would be very little as (i) the loan is interest-free, (ii) it is probably not enforceable, and (iii) no hypothetical purchaser would expect it to be repaid. On that basis, I assume that you agree that the IHT due would even less. I have therefore sellotaped a 5p piece to settle the IHT liability as I didn't have anything smaller to hand. I would ask that you send me my change at your earliest convenient.

For the avoidance of doubt, you should discuss your reply with your independent tax adviser and not a random stranger on the internet.

[ScottW]

Welcome to Alice in Wonderland, HMRC's explanation of application of Inheritance Tax to a written off loan:

'Under Part 7A ITEPA 2003, a loan write off is a “relevant step”. The value of that step is an amount charged to Income Tax (IT). In the first instance then, there is no Inheritance Tax (IHT) on the write off (release) of the loans. However, that is not the case where there is an earlier tax charge. An earlier tax charge is a tax charge that arises before the relevant step. There is no charge to IT on the write off of the loans because of an earlier tax charge, therefore IHT is charged on the full amount.'