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I am surprised that nobody has thought of "avoiding" Inheritance Tax by "loaning" their property portfolio and other investments to their children on their death bed 
Loan charge - do these people want sympathy?
- Thread starter Semple
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As said, the problem with the scheme was that there was never any intention to pay the loans back, therefore they weren't loans but disguised income if you like
I'll answer this, as I think it might be a genuine question. If you're just being facetious or trolling then I cant be bothered.
First read my post here: https://www.overclockers.co.uk/forums/posts/34126698, which says:
Now read this link which explains how to take HMRC to tribunal: https://www.gov.uk/tax-tribunal
Specifically, take note of the text which says "appeal a decision".
Now tell me how the taxpayer:
1. Appeals the underlying tax enquiry (i.e. appeal HMRC saying they owe tax for the 2011 scheme they used. NOT appeal the 2019 loan charge - which is quite different).
2. Does not pay the money up front (in the form of the Loan Charge).
It cannot be done. The Loan Charge is not in dispute. It's effectively a law which says -
If X has a loan Y outstanding on the 5th April 2019, they have to pay income tax on it.
None of these scheme users dispute they have outstanding loans. That's how the schemes worked! (Put aside your personal views on the contrived nature of the schemes). So HMRC effectively have a law which says these people need to pay Y - try taking that to a tribunal. You've lost before you've even started.
Yet the underlying scheme and tax liability never sees it's day in court. And that, as someone who believes in the judiciary and the rule of law being sacrosanct, is unacceptable. HMRC should not be able to side step the law like this, just to make their lives easier.
And apparently I'm back for more fun in this thread. Haven't really been through too much as busy, so just looking at some of the latest.
@dowie I know you tagged me but I haven't really gone through the detail of what you were discussing.
Anyway, to the reason why I logged in. First post.
This is unfortunately a simplistic view which actually doesn't really represent the potential reality. Per the Rangers case a slimmed down version of the implications of these schemes is that:
Step 1: someone earns/is entitled to taxable income
Step 2: that income is contributed to a trust or other third party
Step 3: the trust or third party loans the money to the person, minus fees and whatever else (there may have been a basic element of taxable income at this stage as well).
HMRC assesses the person on taxable income at Step 1. But importantly just because HMRC says tax is owed at Step 1 doesn't necessarily negate any of the other steps. Unfortunately some users of these schemes are now seeing either the Trusts, or liquidators acting for management companies etc. chasing them for repayment of the loans at Step 3. This is leaving some people in the unfortunate predicament that they have been taxed on the income and may also need to pay the income back to whomever loaned the funds in the first place. I imagine in a lot of instances the Step 3 loans may be found not to be enforceable for one of many reasons I don't know as I'm not a lawyer, but I also imagine there may well be some instances where those loans are entirely enforceable.
@dowie I know you tagged me but I haven't really gone through the detail of what you were discussing.
Anyway, to the reason why I logged in. First post.
This is unfortunately a simplistic view which actually doesn't really represent the potential reality. Per the Rangers case a slimmed down version of the implications of these schemes is that:
Step 1: someone earns/is entitled to taxable income
Step 2: that income is contributed to a trust or other third party
Step 3: the trust or third party loans the money to the person, minus fees and whatever else (there may have been a basic element of taxable income at this stage as well).
HMRC assesses the person on taxable income at Step 1. But importantly just because HMRC says tax is owed at Step 1 doesn't necessarily negate any of the other steps. Unfortunately some users of these schemes are now seeing either the Trusts, or liquidators acting for management companies etc. chasing them for repayment of the loans at Step 3. This is leaving some people in the unfortunate predicament that they have been taxed on the income and may also need to pay the income back to whomever loaned the funds in the first place. I imagine in a lot of instances the Step 3 loans may be found not to be enforceable for one of many reasons I don't know as I'm not a lawyer, but I also imagine there may well be some instances where those loans are entirely enforceable.
Second post for me to reply to.
NONE OF THE BELOW CONSTITUTES ADVICE. IT IS HIGHLY SIMPLIFIED. ANYONE WHO CHOOSES TO RELY ON IT DOES SO AT THEIR OWN RISK AND I ACCEPT NO RESPONSIBILITY FOR IT.
Just like Sonny's this is a simplistic view on the situation. A more detailed (and yet still simplistic) explanation is as follows.
1) As correctly stated the loan charge doesn't resolve the underlying dispute of the tax planning, although there are safeguards to prevent double taxation (although the loan charge creates a "higher of" situation, the person pays the higher of the underlying tax or the loan charge).
2) The loan charge doesn't apply to any loan. It applies to a loan which is caught by the disguised remuneration legislation.
3) If (for the sake of argument) a particular piece of tax planning is successful and not caught by the disguised remuneration legislation then the loan charge also doesn't apply.
4) A taxpayer cannot appeal a tax return they have submitted, they can only amend it or submit a claim for overpaid tax. Both have time limits. If those time limits are exceeded then a taxpayer has to rely on HMRC's powers under their general responsibility to administer the tax system to recoup any overpaid taxes.
What does the above mean? Let's take the following, Person X did a scheme in 2014 and it is under enquiry by HMRC. X decides to submit his loans on his 18/19 tax return and duly pays the tax owed as shown under the loan charge. HMRC doesn't enquire into the 18/19 return as they see it as correct.
X has every right to appeal any decision on the enquiry in 2014 return once HMRC make a decision. That is an appealable decision. Let's assume the appeal process goes through several levels at the court and eventually takes 5 years to complete, which isn't an unreasonable time frame. X wins. Yay! But hold on, because X won he never actually had to pay the loan charge. How does he get the money back? There's no actual mechanism to do so (edit: I'm not actually 100% on this, I haven't checked the LC rules recently and pretty sure there weren't any special rules last time I looked!!!), the time limit for an overpayment is 4 years, you can't open an appeal in your own self-assessment and HMRC were content with the 18/19 return as submitted and didn't open an enquiry. Now X has to rely on the generosity of HMRC to repay it.
This is where fezster is taking issue.
However there is still a solution for @dowie . The solution is that in the 18/19 return, if X thought they were correct not to include the loan then they shouldn't have done so, probably with a lot of whitespace disclosure to explain why they weren't disclosing. HMRC won't be happy about this and may or may not open an enquiry. But that isn't important as per above we know in 5 years' time that X wins the case. That disposes of the loan charge issue as well. The underlying tax dispute has been challenged through the courts and that has dealt with the loan charge as well.
The big risk with this route is if in fact X loses. Then not only are they subject to interest and penalties on the 14/15 return, but also their 18/19 return. They've really ramped up the cost to them. The loan charge becomes a massive disincentive to argue where there is genuine uncertainty about the application of the legislation and whether a particular piece of planning works or not. From a pure advisory standpoint that is quite unsatisfactory. Where planning is undertaken I want things to go to court so we get better clarity on the rules. I don't want HMRC to use a sledgehammer to scare people away as that's unfair on taxpayers in general.
NONE OF THE BELOW CONSTITUTES ADVICE. IT IS HIGHLY SIMPLIFIED. ANYONE WHO CHOOSES TO RELY ON IT DOES SO AT THEIR OWN RISK AND I ACCEPT NO RESPONSIBILITY FOR IT.
Just like Sonny's this is a simplistic view on the situation. A more detailed (and yet still simplistic) explanation is as follows.
1) As correctly stated the loan charge doesn't resolve the underlying dispute of the tax planning, although there are safeguards to prevent double taxation (although the loan charge creates a "higher of" situation, the person pays the higher of the underlying tax or the loan charge).
2) The loan charge doesn't apply to any loan. It applies to a loan which is caught by the disguised remuneration legislation.
3) If (for the sake of argument) a particular piece of tax planning is successful and not caught by the disguised remuneration legislation then the loan charge also doesn't apply.
4) A taxpayer cannot appeal a tax return they have submitted, they can only amend it or submit a claim for overpaid tax. Both have time limits. If those time limits are exceeded then a taxpayer has to rely on HMRC's powers under their general responsibility to administer the tax system to recoup any overpaid taxes.
What does the above mean? Let's take the following, Person X did a scheme in 2014 and it is under enquiry by HMRC. X decides to submit his loans on his 18/19 tax return and duly pays the tax owed as shown under the loan charge. HMRC doesn't enquire into the 18/19 return as they see it as correct.
X has every right to appeal any decision on the enquiry in 2014 return once HMRC make a decision. That is an appealable decision. Let's assume the appeal process goes through several levels at the court and eventually takes 5 years to complete, which isn't an unreasonable time frame. X wins. Yay! But hold on, because X won he never actually had to pay the loan charge. How does he get the money back? There's no actual mechanism to do so (edit: I'm not actually 100% on this, I haven't checked the LC rules recently and pretty sure there weren't any special rules last time I looked!!!), the time limit for an overpayment is 4 years, you can't open an appeal in your own self-assessment and HMRC were content with the 18/19 return as submitted and didn't open an enquiry. Now X has to rely on the generosity of HMRC to repay it.
This is where fezster is taking issue.
However there is still a solution for @dowie . The solution is that in the 18/19 return, if X thought they were correct not to include the loan then they shouldn't have done so, probably with a lot of whitespace disclosure to explain why they weren't disclosing. HMRC won't be happy about this and may or may not open an enquiry. But that isn't important as per above we know in 5 years' time that X wins the case. That disposes of the loan charge issue as well. The underlying tax dispute has been challenged through the courts and that has dealt with the loan charge as well.
The big risk with this route is if in fact X loses. Then not only are they subject to interest and penalties on the 14/15 return, but also their 18/19 return. They've really ramped up the cost to them. The loan charge becomes a massive disincentive to argue where there is genuine uncertainty about the application of the legislation and whether a particular piece of planning works or not. From a pure advisory standpoint that is quite unsatisfactory. Where planning is undertaken I want things to go to court so we get better clarity on the rules. I don't want HMRC to use a sledgehammer to scare people away as that's unfair on taxpayers in general.
Again, legally no issue here. The arrangements of a loan are between lender and lendee, never the tax man. Equally, the use of the term loan is ambiguous. I could loan you a calculator, what do I want in return? Work that you've already done for me, the same calculator back, or a bigger better calculator (loan + interest)?
Soldato
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I have more sympathy for benefits cheats than I do for tax dodgers. The same Ltd Co. tax dodgers where caught out when the furlough rules left them with nothing to claim.
Caporegime
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Legally there is a big issue.
You are now venturing into barter transaction or deemed supplies.
You do work for X. You receive money from X for said work in the form of a loan. It's disguised renumeration.
If I borrow a calculator what's the supply and renumeration?
Did I supply you with work or a service when I borrowed your calculator? What's the Value of the calcultor? Did I give you the calculator back?
All of these things matter when you are identifying a situation and what actually happened.
I'll give you an example let's say you are a professional rally car driver. Let's say I own an oil company. You say I want to use your oil, give it to me for free and I will put a sticker on my car in return so you get advertising.
Do you think any tax is due in the above scenario? Yes it is because a product, service and work has exchanged hands between two registered companies even though no money has.
Basically you cannot say something is a loan when it's not in a business or work setting.
That is actually fraud and therefore illegal. So you are completely incorrect in your logic.
It's why politicians cannot accept gifts like a day out in the executive box from a private company, etc. Because that use has value and is seen as money or gift being given to them in the form of a perk.
*walks into thread as a CTA*
*walks back out slowly...*
Yeah, I'm not even going to bother getting into the detail behind the loan charge and schemes. My personal opinion is that these individuals knew they were creating artificial structures to reduce their tax bill and shouldn't have been surprised when it bites them in the arse. I believe if you are choosing to operate as a contractor you should have basic knowledge of what is legally required of you. I see far too many people setting up limited companies with zero knowledge because their mate told them they can save tax, "just speak to this accountant and they'll sort you out". Yes, the accountants selling the schemes should have been equally liable but if something smells fishy it usually is. Ignorance doesn't mean you can walk away scot free.
The law has been updated to make advisors more liable than ever for the schemes they advise on. In fact, you have to register schemes you are offering so that HMRC can track them down quicker. I also legally have to report when I do anything that might look like planning to solely reduce tax.
The loan charge and the subsequent tax bills have destroyed families through suicide, which I feel awful for the families for.
*walks back out slowly...*
Yeah, I'm not even going to bother getting into the detail behind the loan charge and schemes. My personal opinion is that these individuals knew they were creating artificial structures to reduce their tax bill and shouldn't have been surprised when it bites them in the arse. I believe if you are choosing to operate as a contractor you should have basic knowledge of what is legally required of you. I see far too many people setting up limited companies with zero knowledge because their mate told them they can save tax, "just speak to this accountant and they'll sort you out". Yes, the accountants selling the schemes should have been equally liable but if something smells fishy it usually is. Ignorance doesn't mean you can walk away scot free.
The law has been updated to make advisors more liable than ever for the schemes they advise on. In fact, you have to register schemes you are offering so that HMRC can track them down quicker. I also legally have to report when I do anything that might look like planning to solely reduce tax.
The loan charge and the subsequent tax bills have destroyed families through suicide, which I feel awful for the families for.
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HMRC being able to retroactively amend the tax code 20 years into the past is enough to cause concern for a number of currently legitimate means of avoiding tax.
Regardless of the moral standpoint of what these contractors were doing, that is absolutely terrifying. HMRC cannot reasonably claim to have been unaware of the practice for two decades.
Regardless of the moral standpoint of what these contractors were doing, that is absolutely terrifying. HMRC cannot reasonably claim to have been unaware of the practice for two decades.
Of course. Likely quite sizable.
Not true, especially when the parties are in any way related (broad definition).
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You're getting sucked in!!!
I think there were two issues, getting evidence of who was actually involved with it and then getting the court judgements which both took years and years. The big break was RangersFC going into administration apparently as it unwittingly provided a treasure trove of paperwork into the use of EBTs in 2012, including the "side letters" demonstrating the schemes were an artificial contrivence. It was then not until 2017 (I think?) that the final court judgements were made, which agreed that these schemes were a deliberate attempt to avoid tax, rather than a simple error of misapplication of tax rules so allowed HMRC to go back 20 years if they wanted rather than the usual 6 years.
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It was the Vodafone post that triggered me
It' been a while since I've been on GD haha
I took a deep breath and walked away at that post
Very thorough summary, @Pudney. This was my understanding, but it's good to get validation from someone who works in this field.
Completely agree with the risk being if X loses - a massive disincentive for any of these people contemplating fighting.
However, I also remember reading that HMRC are deliberately avoiding taking any schemes to tribunal - sometimes for years on end. This racks up interest and penalties, thus disincentivising X further into taking this risk. There may be a way to force a case to go to tribunal, but it's not clear if HMRC need to oblige for it to happen in a timely manner.
Also, not declaring the Loan Charge correctly has punitive penalties attached to it. I dont have it to hand, but isn't it 100% or something? It's likely these penalties would become due way before the taxpayer gets his/her day in court.
I hear this but not sure how valid it is. It doesn't appear to be for the limited selection I'm aware of.
It should be noted though that a taxpayer can apply to the courts to order HMRC to close an enquiry. At that point it's up to the taxpayer to appeal to the tribunals, then it's up to the tribunals to manage the process. HMRC can still cause problems but they can and have been barred from the process for failure to follow the tribunal's rules.
This - 100%. I've reached my limit of enthusiasm on this topic, but I will continue to follow the outcome, because further action from HMRC (especially around IR35 and retrospective legislation) should frighten any current or former contractor.