Clarification of settlement terms for disguised remuneration liabilities

HMRC has issued updated guidance to clear up a misunderstanding about the arrangements for settlement of disguised remuneration liabilities for loan charges in relation to inheritance tax (IHT)

HMRC settlement terms were published in November 2017 to encourage users of these schemes to settle their tax affairs before the loan charge comes in, on 5 April this year.

The tax authority now says it has become aware that wording about IHT in the settlement pack scheme users need to complete is being misunderstood, particularly in instances where contractor loans schemes have been used.

Some scheme users are being told that HMRC will demand a deed of release or exclusion, or both, before agreeing a settlement of disguised remuneration liabilities and in some cases, being charged for these deeds.

Some advisers are using the wording on IHT in the settlement pack to ask scheme users to pay a fee or a percentage of the loan amount to secure a deed of release or exclusion, or both.

The guidance clarifies that HMRC will not demand a deed of release or exclusion, or both, before agreeing a settlement.

Any payment made to an adviser will not reduce the amount of earnings or income to be included in the settlement.

If a settlement is not reached and the loan charge becomes payable, HMRC says it may accept a payment made to secure a deed of release or exclusion, as reducing the outstanding loan balance if it is paid in cash and represents a genuine repayment of the loan.

Any flat fee paid is unlikely to be deductible in reaching the settlement amount due.

HMRC has now changed the IHT wording of the settlement pack to explain to taxpayers exactly what is required.

It now reads: ‘I wish to have IHT included in the settlement on the basis of the loans being written off or released within 30 days of a settlement being agreed. No further evidence will be required by HMRC of this. If the loans are not written off or released within 30 days of a settlement being agreed, I will contact HMRC so that the IHT position can be reviewed.’

Those wishing to settle only need to contact HMRC if they do not take the required action, as explained in the changed wording in the settlement pack. HMRC will consider if there needs to be any change of the IHT figure, where appropriate.

Those settling need to make sure the debt is legally released and it is still possible that trustees or other people could require deeds. However, there is no requirement for HMRC to see such a deed when it concludes a settlement.

Disguised remuneration: contractor loans settlements and obtaining a deed of release (Spotlight 48)

Report by Pat Sweet

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