Writing off the loan - IHT implications

[bear1]

Hi All

I'm new to this forum and not getting very far with my questions from the professionals. I am just about to have my loan written off. Can anyone tell me what tax implications this entails?

I understand a bit of Trust Law and I'm assuming the writing off the loan would be viewed as receiving income or potentially a Lifetime Chargeable Transfer (LCT)? Does anyone have any insight into the implications of me writing off the loan please?

Thank you in advance.

Bear

[piebaps]

Use the search facility Bear, there's loads on this question. Grab a brew too, you may be a while.

[RickG]

I'm sure webberg will opine, but speak to a tax advisor. There's implications beyond iht. S554C I believe.

[bear1]

Use the search facility Bear, there's loads on this question. Grab a brew too, you may be a while.

Thank you! I'll have a look.

[bear1]

I'm sure webberg will opine, but speak to a tax advisor. There's implications beyond iht. S554C I believe.

Thank you

[webberg]

IHT.

There are the facts and then there are the theories.

If (and it's a big "if") money was placed with a trust by you (a "settlor") and then loaned to you ("A beneficiary"), then there are IHT implications.

The placing of funds/assets outside your estate and into a trust. That action may result in an entry charge, an anniversary charge (every 10 years) and an exit charge.

An exit might well be the writing off of a loan, leaving the trust with no assets and you with an increased estate.

Clearly for all of this to happen, the initial stages have to happen, i..e. the movement of funds into and out of the estate on such terms as to constitute a legal transaction.

HMRC say that the documents they have prove this.

Perhaps they have seen something I have not.

Ultimately this will need to be tested in Court.

In the meantime HMRC does include this IHT charge in settlement calculations.

Or you can elect for that not to happen and deal with the IHT later.

So the loan/write off is not within the lifetime chargeable event rules.

[DealorNoDeal]

If (and it's a big "if") money was placed with a trust by you (a "settlor") and then loaned to you ("A beneficiary"), then there are IHT implications.

But, strictly speaking:

a) the scheme user didn't place the money in the trust
b) and it wasn't the scheme user's money either (as you've been at pains to point out to people who think they borrowed their own money)

God, what a convoluted mess this all is.

[eek]

But, strictly speaking:

a) the scheme user didn't place the money in the trust
b) and it wasn't the scheme user's money either (as you've been at pains to point out to people who think they borrowed their own money)

God, what a convoluted mess this all is.

The issue is that once the money left the agent it became Schrodinger money - rapidly becoming multiple different things at almost the same time.

Everyone (except the members of the scheme) then looks into the box and sees things exactly the way they want to see.

[webberg]

But, strictly speaking:

a) the scheme user didn't place the money in the trust
b) and it wasn't the scheme user's money either (as you've been at pains to point out to people who think they borrowed their own money)

God, what a convoluted mess this all is.

I'd certainly agree with "a" and the fact that this is a mess.

Point "b" is perhaps where we might differ.

According to Rangers, the employer redirected earnings to a third party - a trust. That did not impact the taxable nature of the sum (it was employment income).

It did not however answer the question about which party was the "settlor" of the trust.

Was it the employer - in which case the analysis of trust/beneficiary goes in one direction or:

Was it the employee who directed the employer to make a contribution to a trust?

On that question could hang a lot of answers.

[RickG]

Apparently beneficiaries can be liable to IHT charges for trusts based off-shore.

However, specific to this thread - webberg, Id hoped you would point out that writing off of loans has implications beyond IHT, after the passing of FA 2017.