Reply to: Paying off the Loan

[QUODM]

simultaneous earmarking and relevant step repayment.

on the earmarking thing again

Heres a link, off a link ILikeTax posted in another forum.
https://www.gov.uk/hmrc-internal-man...anual/eim45110

Preparatory
Section 554B(1)(a) refers to a sum of money or asset being earmarked ‘with a view to a later relevant step being taken’.

Therefore, ‘earmarking’ is not a free-standing action. It is a preparatory step for a later relevant step within Section 554C or 554D.

Simultaneous steps
Suppose a sum of money or asset is earmarked with a view to a relevant step within Section 554C or 554D being taken at the same time.

Then it is not earmarked with a view to a later relevant step being taken. And so this act of earmarking is not a relevant step within Section 554B.


So suggestion if the trust kept it in a general pot and only earmarked it WHEN they paid it to you, this wouldn't count as a relevant step, therefore no part 7a Charge?
Useful if you're non resident when you did this all, no?

[Calmbeforethestorm]

I equally have no desire to exchange views on specific cases here and my intentions were not to elicit information from you.

If you feel I have done that - my apologies.

You clearly however need to be careful in mapping across commentary from me and others - which is all centred on contracting - to a situation which is not. Tax is usually settled on fine details and will turn on seemingly insignificant facts.

Yes sorry , I know you can always ask me if you want details and you're completely right, going into too much detail here is risky....if only because it confuses readers.

Im merely attempting ( badly) to impart information in the hope that between us all we get the right answers.

I have derived a great deal of comfort form being involved in this forum tho Im not a contactor.There isnt another for folk like me Im aware of.

[webberg]

Like I said, my case is quite specific and has nothing at all to do with contracting, loans instead of remuneration or anything like that. Im not prepared to discuss it in open forum either.

I equally have no desire to exchange views on specific cases here and my intentions were not to elicit information from you.

If you feel I have done that - my apologies.

You clearly however need to be careful in mapping across commentary from me and others - which is all centred on contracting - to a situation which is not. Tax is usually settled on fine details and will turn on seemingly insignificant facts.

[Calmbeforethestorm]

Pretty sure I've seen that advice and if it's what I think it is, then in my opinion, that advice is unlikely to find agreement with HMRC, will be challenged and is likely to be found wanting.

It's not enough that a trust holds a fungible sum for many potential beneficiaries which it may distribute at discretion. That is fine on paper and would fit the literal interpretation but tax law ahs moved on.

Now a Judge will look at the facts. Did the money ever reach the trust? Did the trustee ever have the funds under its control? What was the source of the loans - a UK bank account or the trust account in far flung Exotica? Was it in fact a payment from a UK source controlled by a UK entity? Is it the case, that despite discretion on paper, the percentage of money you received was always a function of your invoices? In short, was the trust and its alleged arrangement real or just a paper castle?

Look at the tax cases.

Look at Icebreaker. Look at Rangers. Look at Eclipse.

I sincerely hope that your store of expensive advice is correct and that we will see Courts come back towards the rule of law. I hope I am wrong.

Unfortunately my faith in that position being restored is low.

Like I said, my case is quite specific and has nothing at all to do with contracting, loans instead of remuneration or anything like that. Im not prepared to discuss it in open forum either.

[webberg]

Definately a bit of a grey area Webberg, I am fairly confident that, in my case at least, I can repay without falling foul of earmarking whilst in the UK and wouldn't fall foul of earmarking in the future if the money was taken back and declared at the same time... so there is scope to spread it out over time at lower rates...but this is because the Trustees hold funds for all beneficiaries and they are only "earmarked" as they are paid back.Much in the same way that a company pension fund operates.

It would be interesting to see what would happen if I left the Uk in , say 5 years, and then withdrew the funds whilst resident outside the UK. Its a fairly extreme option....but beats bankruptcy I guess.

I have a wealth of expensively obtained tax counsel's opinion on this subject which Ill share with you if you care to PM me.

Pretty sure I've seen that advice and if it's what I think it is, then in my opinion, that advice is unlikely to find agreement with HMRC, will be challenged and is likely to be found wanting.

It's not enough that a trust holds a fungible sum for many potential beneficiaries which it may distribute at discretion. That is fine on paper and would fit the literal interpretation but tax law ahs moved on.

Now a Judge will look at the facts. Did the money ever reach the trust? Did the trustee ever have the funds under its control? What was the source of the loans - a UK bank account or the trust account in far flung Exotica? Was it in fact a payment from a UK source controlled by a UK entity? Is it the case, that despite discretion on paper, the percentage of money you received was always a function of your invoices? In short, was the trust and its alleged arrangement real or just a paper castle?

Look at the tax cases.

Look at Icebreaker. Look at Rangers. Look at Eclipse.

I sincerely hope that your store of expensive advice is correct and that we will see Courts come back towards the rule of law. I hope I am wrong.

Unfortunately my faith in that position being restored is low.

[Loan Ranger]

Montpelier are definitely still around.

I can provide their phone number if anyone wants it.

Around, yes. Trustworthy?

People who've repaid loans can't get any money back from them.

[Calmbeforethestorm]

The other issue is whether you can trust the Trustees.

The trustees of the Montpelier scheme requested repayment of 10% of the loans in 2016. Some people did repay but they haven't been able to get any of the money back since. The trust deeds gave the trustees wide discretion as to how they could deploy the funds, so whether there is any money left is debatable.

Montpelier are definitely still around.

I can provide their phone number if anyone wants it.

[Loan Ranger]

the Trustees hold funds for all beneficiaries and they are only "earmarked" as they are paid back

The other issue is whether you can trust the Trustees.

The trustees of the Montpelier scheme requested repayment of 10% of the loans in 2016. Some people did repay but they haven't been able to get any of the money back since. The trust deed gave the trustees discretion as to how they could use the funds, so they may have spent it.

[Calmbeforethestorm]

I think that if you are non res and repay the loan, then the anti avoidance rules discussed above will be just as applicable.

If it is a genuine repayment and money is later earmarked or paid, whilst non resident, then perhaps it will fall outside Part 7A (which has an underlying assumption of UK tax resident status).

Quite how you prove that situation I don't know.

Definately a bit of a grey area Webberg, I am fairly confident that, in my case at least, I can repay without falling foul of earmarking whilst in the UK and wouldn't fall foul of earmarking in the future if the money was taken back and declared at the same time... so there is scope to spread it out over time at lower rates...but this is because the Trustees hold funds for all beneficiaries and they are only "earmarked" as they are paid back.Much in the same way that a company pension fund operates.

It would be interesting to see what would happen if I left the Uk in , say 5 years, and then withdrew the funds whilst resident outside the UK. Its a fairly extreme option....but beats bankruptcy I guess.

I have a wealth of expensively obtained tax counsel's opinion on this subject which Ill share with you if you care to PM me.

[ChimpMaster]

Interesting that HMRC seem to insist that the LC isn't retrospective, because you are free to repay the loan to avoid the charge.

What HMRC haven't accounted for is the situation in which the scheme provider is long gone, and where the Trust no longer holds any information on the scheme users or of the loans. So in effect, I am in a position where I cannot repay the loan.

[webberg]

I think that if you are non res and repay the loan, then the anti avoidance rules discussed above will be just as applicable.

If it is a genuine repayment and money is later earmarked or paid, whilst non resident, then perhaps it will fall outside Part 7A (which has an underlying assumption of UK tax resident status).

Quite how you prove that situation I don't know.

[Calmbeforethestorm]

For the loan charge itself, I can see that it may not matter where you're resident on 5/4/19 because it's treated as earnings and, supposedly, UK earnings are taxable wherever you reside in the world.

However, the question here is what happens if you're non-resident and repay the loan before 5/4/19?

If you repay the loan there is no problem....save only on how to get the money back

This depends on your scheme, in mine, I have drawdown from funds over the last 5 years and declare as I do.There is no problem.

Problem for me arises because I borrowed money from the scheme 13 years ago and didnt repay that , as at the time there was no need to declare or repay it.Now there is.

I can repay my loans ( if I had the cash) and then draw it down at a later date.

If I went abroad, then LC still applies because its too late to leave the country this year, but its a possibility for the future....so i have to settle or repay. Simples.

[Loan Ranger]

For the loan charge itself, I can see that it may not matter where you're resident on 5/4/19 because it's treated as earnings and, supposedly, UK earnings are taxable wherever you reside in the world.

However, the question here is what happens if you're non-resident and repay the loan before 5/4/19?

[webberg]

HMRC's position, if you are not physically resident in the UK for tax purposes in 2018/19, is covered in the legislation.

In essence, HMRC say that if you were resident in the period in which the loan was made, then that is enough to make the charge in 2018/19 stick.

To my mind, that is unprecedented and is certainly an area that will attract challenge both in the UK and in foreign courts should collection be attempted.

In addition, HMRC might argue that the loans represent a "UK source". If so, then it matters not where you are resident as UK tax is due.

Again, that presents difficulties for HMRC in that they are very keen to argue that if the employer is "offshore", that prevents them from raising assessments on them and therefore you are liable.

So you may have an offshore employer/lender who is not liable for tax, but your loan is from a UK source. Squaring that circle will also lead to a number of challenges I suspect.

[Loan Ranger]

That's how I see it also.

The repayment itself is okay. It has to be, to allow HMRC to make the claim that the legislation isn't retrospective. As they have stated if you don't want to pay the charge you can pay off the loan. Yes, the repayment option is just an artifice.

But why would anyone repay the loan when it is going to cost more than the loan charge, unless there is some earmarking going on? So there would be intense scrutiny.

However, if the repayment and thus the "notion" of a earmarking takes place after a person is no longer regarded as a resident for tax purposes (but before April 2019), then I think there is a reasonable chance that HMRC will regard it as too complex to pursue. Yes, that might fly.

Both the Trust and the person could resist an enquiry or a request for a declaration by referring HMRC to the tax authority in the country where they are now tax resident.

Even if the Trust provided the information, HMRC would have to claim that leaving the county was tax avoidance, which isn't unlawful by itself. Except when the law says that tax avoidance is unlawful, which the quoted text sort of says.

Feels like Russian Roulette.

I'd like to see HMRC trying to explain, to a foreign tax authority, how repaying a loan is a taxable event.