Repaying Loan

[Harrai]

Hi All.

Is there any new information on repaying the loan in cash, therefore avoiding the LC, and then using the funds in the trust to invest?

Thanks

[WalterWhite]

Hi All.

Is there any new information on repaying the loan in cash, therefore avoiding the LC, and then using the funds in the trust to invest?

Thanks

I doubt many people are in the position to repay their loan in full.

Also, if you are, how do you know the trustees will invest it for you and not keep it?

[Loan Ranger]

Also, the LC contains provisions to prevent repayment being used for tax avoidance purposes.

[Harrai]

So under what conditions can the loan be repaid? I've seen this as an option that has been discussed on various websites

[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.

[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]

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

[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]

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.

[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.