Settlement and loan write off Settlement and loan write off
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  1. #1

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    Default Settlement and loan write off

    There seem to be a fair few posts around on the above.

    This may help.

    When agreeing a settlement with HMRC, you are presented with a choice to be made on the loans.

    A. If you wish to have them written off (usually within a short period of final agreement) then HMRC will include an IHT (or not, depending on the lender, circumstances, etc).

    B. If you choose not to have them written off within the post settlement window, then HMRC has the right to make a further IHT charge when they are written off or otherwise reduced in value.

    If you go for option A, then you will need to achieve that write off within the window in order to meet the terms. If you are outside that window then due to the nature of the IHT calculation in many cases (it's based on - approx. - 1% of the loan value per year from the first loan - so it increases over time) HMRC claim that more IHT may be due.

    There is NO CONNECTION between the agreed period post settlement for having the loan written off and whatever time to pay you may have agreed.

    Even if you have 10+ years to pay the settlement, if you have chosen Option A, you will need to have the loan written off within the 30/90 days after agreement or risk HMRC coming back for more alleged IHT.

    Do NOT wait for the end of the payment period.

    Some lenders/trusts will agree a write off, usually upon proof that you have settled. (This means that they are unlikely to be chased for tax due on the payments made).

    You will have to ask your lender (or whomever claims to own the loan now) for their agreement.

    Some will charge a fee of a few or quite a few hundred pounds.

    If you have gone for option B, then HMRC will claim that a subsequent write off of the loan may attract an IHT charge in the future. IHT has a self assessment system and the theory (and probably legal obligation) is that when such an event occurs, you are required to make a disclosure.

    The above is based on HMRC's interpretation of IHT rules. It is not an interpretation that I consider is correct. A debate in front of a Tribunal may eventually be required to determine the "correct" position.

    If you have settled and paid the IHT, then the outcome of that debate makes no difference to you. The settlement is agreed and paid and you cannot recover any of it.

    The most often encountered difficulty here is knowing who the lender was, who owns the loans now and how to contact them. This can be worked out with an hour's research in most instances, starting with the original loan agreement and then moving to corporate records in the UK or elsewhere. You will also find that most of the financial regulators in IOM, Guernsey, Jersey, etc are helpful and a call to them will pay dividends.

    A loan, once made, cannot disappear without some action from the lender (or of course repayment in money by the borrower which I'm assuming is quite rare). Therefore if the original lender was a company and that company has been dissolved, liquidated, struck off, then the assets will go to the shareholders. Those assets will include the loans.

    If the lender was a trust or the loans were moved to a trust, then whilst the trustee can resign they are usually obliged to appoint another trustee. (I think in some instances, the local financial authority may have to step in as trustee). The local financial regulator should be able to help you.

    Some advisers will have details of lenders and their contact details. If they are similar to us, we have those details because we have researched the scheme to establish a tax analysis. Often the person who is the current contact point is quite sensitive about their contact details being widely available. It is also usually the fact that we cannot share those details with those who are not our clients for fear of breaching all sorts of rules. We will not therefore publish details of schemes where we know a write off is possible - or where we know requests have been refused.

    Hope this helps.
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  2. #2

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    Thank you for this.

    my umbrella payments (loans) amount to around 50k.

    If, I settle with HMRC and pay the tax will the loan repayment due to the umbrella become null and void? or is there still a chance that the Umbrella will demand repayment in a few years?

    I read the contract, and it states that all loans must be repaid in full after 10 years.

    Best,

  3. #3

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    Quote Originally Posted by Rogets View Post
    Thank you for this.

    my umbrella payments (loans) amount to around 50k.

    If, I settle with HMRC and pay the tax will the loan repayment due to the umbrella become null and void? or is there still a chance that the Umbrella will demand repayment in a few years?

    I read the contract, and it states that all loans must be repaid in full after 10 years.

    Best,
    Best perhaps, to ask yourself why you don't think you'll have to repay the loan you signed up for?
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  4. #4

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    Quote Originally Posted by Rogets View Post
    Thank you for this.

    my umbrella payments (loans) amount to around 50k.

    If, I settle with HMRC and pay the tax will the loan repayment due to the umbrella become null and void? or is there still a chance that the Umbrella will demand repayment in a few years?

    I read the contract, and it states that all loans must be repaid in full after 10 years.

    Best,
    HMRC and the loan are 2 completely separate things.

    HMRC are looking at the transaction as a whole - they see work you did that wasn't taxed correctly so wish to receive the tax that was due.

    The umbrella company see money in their account that they then lent to you. If they ask for it back you haven't really got much of an argument.

    Yes it is completely unfair but that is what you actually agreed to (regardless of whether you knew and understood it in the first place).
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  5. #5

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    Quote Originally Posted by eek View Post
    HMRC and the loan are 2 completely separate things.

    HMRC are looking at the transaction as a whole - they see work you did that wasn't taxed correctly so wish to receive the tax that was due.

    The umbrella company see money in their account that they then lent to you. If they ask for it back you haven't really got much of an argument.
    Thanks - If I pay tax on the loans now. And in a few years' time, I pay the loans back. Will HMRC refund the tax paid now?

    The fact that the loans are paid back would prove that they are indeed "legit" loans.
    Last edited by Rogets; 24th November 2020 at 09:10.

  6. #6

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    Quote Originally Posted by Rogets View Post
    Thanks - If I pay tax on the loans now. And in a few years' time, I pay the loans back. Will HMRC refund the tax paid now? No

    The fact that the loans are paid back would prove that they are indeed "legit" loans.
    Have you asked the company if they would agree to write off the loans if you settle with HMRC?
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    Quote Originally Posted by Rogets View Post
    Thanks - If I pay tax on the loans now. And in a few years' time, I pay the loans back. Will HMRC refund the tax paid now?

    The fact that the loans are paid back would prove that they are indeed "legit" loans.
    No - as you had access to the money and that is enough in HMRCs eyes.

    As DealOrNoDeal states your best bet is to ask for the loans to be written off if they are willing to do so. But they might not be willing to do so as people who used the IQ schemes are currently discovering.
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  8. #8

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    Quote Originally Posted by eek View Post
    No - as you had access to the money and that is enough in HMRCs eyes.

    As DealOrNoDeal states your best bet is to ask for the loans to be written off if they are willing to do so. But they might not be willing to do so as people who used the IQ schemes are currently discovering.

    So the loan people are going to be willing to write off the loan or not willing. If they are not willing then they may come calling for repayment. But surely if they are willing then they are not likely to ask for repayment ?. So what's to be gained by asking for write off (as this will also open up the IHT issue) ?
    Also, if they do plan calling in the loans why have they not acted before now (the longer they leave it , harder to track people down, people will no longer be here etc)

    Be interested to know your thoughts on this

  9. #9

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    Quote Originally Posted by jbeer View Post
    So the loan people are going to be willing to write off the loan or not willing. If they are not willing then they may come calling for repayment. But surely if they are willing then they are not likely to ask for repayment ?. So what's to be gained by asking for write off (as this will also open up the IHT issue) ?
    Also, if they do plan calling in the loans why have they not acted before now (the longer they leave it , harder to track people down, people will no longer be here etc)

    Be interested to know your thoughts on this
    I would think key sentence from Webberg is

    “ There is NO CONNECTION between the agreed period post settlement for having the loan written off and whatever time to pay you may have agreed.

    Even if you have 10+ years to pay the settlement, if you have chosen Option A, you will need to have the loan written off within the 30/90 days after agreement or risk HMRC coming back for more alleged IHT.”

    So get it written off ASAP after you have your settlement letter otherwise for each year since your FIRST loan you will be charged 1% of the outstanding balance PLUS the IHT.


    If you had monthly payments as loans for 6 months 2014 and you had say £50k in total settled in Sept 2020 and had 30 days to write off loan, which is now passed then you will be due 6 years IHT At 1% per year cumulative. so calculation would be

    2014 - £50k = 1% IHT = £500 = Total IHT £500
    2015 - £50500 = 1% IHT = £505 = Total IHT £1005
    2016 - £51005 = 1% IHT = £510.05 = Total IHT £1515.05

    So you can see by the time you get to 2020 (now) you could have a IHT bill of over 4 grand!

    Of course if my assumptions are wrong and someone else knows different please put me right.

  10. #10

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    Quote Originally Posted by uppoocreek View Post
    I would think key sentence from Webberg is

    “ There is NO CONNECTION between the agreed period post settlement for having the loan written off and whatever time to pay you may have agreed.

    Even if you have 10+ years to pay the settlement, if you have chosen Option A, you will need to have the loan written off within the 30/90 days after agreement or risk HMRC coming back for more alleged IHT.”

    So get it written off ASAP after you have your settlement letter otherwise for each year since your FIRST loan you will be charged 1% of the outstanding balance PLUS the IHT.


    If you had monthly payments as loans for 6 months 2014 and you had say £50k in total settled in Sept 2020 and had 30 days to write off loan, which is now passed then you will be due 6 years IHT At 1% per year cumulative. so calculation would be

    2014 - £50k = 1% IHT = £500 = Total IHT £500
    2015 - £50500 = 1% IHT = £505 = Total IHT £1005
    2016 - £51005 = 1% IHT = £510.05 = Total IHT £1515.05

    So you can see by the time you get to 2020 (now) you could have a IHT bill of over 4 grand!

    Of course if my assumptions are wrong and someone else knows different please put me right.
    I thought the IHT was charged after the loan is written off? Also you mentioned above “will be charged 1% of the outstanding balance PLUS the IHT”. Aren’t these actually the same thing, are you confusing the two?

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