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  • Jon Preshaw Tax

Confusion continues on loan charge changes

Updated: Sep 23, 2020

Review of the Loan Charge

Confusion continues on loan charge changes

A high degree of uncertainty remains for Individuals who have received loans from EBT’s despite most of the recommendation of the loan charge review led by Sir Amyas Morse being accepted.

The central plank of the recommendations was that loans made before 9 December 2010 should not fail within the charge. This recommendation has been accepted and has at least provided some relief for those who were facing a very significant tax charge on 31 January. However, the position is still far from clear.

Although the loan charge will not apply to pre-December 2010 loans, there have been no other changes yet proposed to the Disguised Remuneration rules. The most important provision which does not appear to have been addressed is the charge which applies when loans are written off. In many cases, clients will be keen to arrange for EBT and similar structures to be wound up but this may prove difficult if loans cannot be written off. Additionally, in the event that loans remain in existence, HMRC will presumably assert that Inheritance Tax charges continue to accrue. This becomes even more problematic where clients hope to take advantage of the proposal that those who have settled their liabilities voluntarily under the HMRC settlement opportunity will be able to reclaim tax paid. In most of those cases, HMRC proposed that the relevant trust structure could be wound up and IHT exit charges should be incorporated in the settlement. In most cases, clients were willing to work with trustees to arrange for closure of the trust on the basis that the IHT liability was an acceptable price to pay for certainty.

In the event that there are no further changes to the Disguised Remuneration rules proposed as part of the post-Morse report package, clients will be left in a difficult position. On the one hand, it will be possible for them to claim that tax paid voluntarily in respect of pre-December 2010 loans can be repaid, but on the other hand a significant tax liability will have been created by the writing off of the loan as part of any unwind of the trust structure. The liability on a loan write-off would in the majority of cases exceed the amount of tax voluntarily paid in settlement to HMRC. The same of course will apply to the very small number of post-December 2010 loans which HMRC agree will not be caught where there has been reasonable disclosure.

Whether this is the outcome which HMRC and Treasury actually want remains to be seen. There is ample opportunity to amend these rules to make them consistent with the approach taken by the loan charge review team. In the meantime, although the proposals are welcome, there are numerous practical issued to be overcome before clients can put the tax issues created by EBT loans behind them.

If you or your clients would like to discuss any of these issues in more detail, please get in touch.


Jon is a specialist tax adviser who supports his clients to resolve and manage disputes with HMRC. Find out more about the services provided or get in touch if you have any queries.



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