Trident Tax Launches New EBT/EFRBS Diagnostic Tool

Trident Tax is pleased to announce the launch today of a new electronic diagnostic tool and review service for professional advisers with individual employee and employer clients who have disputed liabilities under disguised remuneration schemes (EBT/EFRBS).

The diagnostic tool and review service is provided free of charge on an anonymous basis and provides an indicative settlement figure (with a breakdown between the various taxes included in the figure) based on information provided by your client.

A better understanding of the settlement liability should allow clients to more accurately evaluate their current position and to decide whether to register for the latest settlement opportunity with HMRC prior to the 31st May 2018 deadline. In addition, the tool will enable a consideration of the critical question as to whether and how the company (or employee) is able to fund such a liability in the short to medium term.

Following an embargo on settlements, HMRC published its latest guidance taking account of the decision of the Supreme Court in the case of RFC 2012 plc (in liquidation) (Formerly The Rangers Football Club plc) v Advocate General for Scotland. The guidance provides some welcome clarity on the current settlement terms including confirmation of corporation tax relief on a scheme promoter’s fees (backdated to the year of the contribution if the year is “open”) and, the basis on which HMRC expect to be able to transfer PAYE and NIC liabilities to employees.

The many variables in the mix can make it difficult for clients to identify the right course of action at this time, with many feeling abandoned or distrustful of advice from the original scheme providers. The introduction of the disguised remuneration loan charge in April 2019 means, for most participants in disguised remuneration schemes, that “doing nothing” is no longer a viable option and a decision on whether to register under the settlement opportunity now needs to be made.

The anonymous diagnostic tool and review service provides a no cost option to support professional advisers and their clients in making that decision, based on the fact patterns of each case.

The EBT/EFRBS diagnostic tool and the current HMRC settlement opportunity will also be the subject of discussion in April at the next session of our Breakfast Tax Club to be held in our offices at 25 Bedford Square, London WC1B 3HH (further details to follow shortly).

If you would like to arrange to arrange to receive a copy of the diagnostic tool for any of your clients and/or details of how to attend the April Breakfast Tax Club, please contact us here.

Finance Act No.2 2017 creates a new category of “Protected trusts”, where the settlor is not actually UK domiciled, but becomes UK deemed domiciled under the changes in this Act.

This article considers the position for a trust which has been and is settlor-interested for income tax, and which holds income which arose before 5th April 2017 which has not been remitted to the settlor.

We are assuming here that the trust has segregated its capital, income and gains so that it can choose the source of the funds to be invested in the UK. We also assume that the income is segregated into pre and post 5th April 2017 accounts.

Trustees can use clean capital to invest in the UK without triggering a tax charge on the settlor. We consider in this article which other funds the trustees can invest in UK assets without a tax charge, and how this investment might be structured.

Treatment of income from UK assets in a protected trust

Under the new protected trust rules, trust income and gains arising after 5th April 2017 would not become chargeable to tax if the trustee invested the money in UK assets directly. This is because the effect of the protected trust rules is that the income and gains of the trust are not treated as being those of the settlor, whether or not they have become deemed domiciled in the UK.

However, if the assets give rise to income at trust level, this is UK source income and taxable, and so normally an overseas underlying company would be used to make UK investments. This ensures that no UK income arises at trust level, when it would be assessable on the settlor. As we explain below, in some circumstances it won’t be beneficial to use an overseas company to ensure UK income tax is not payable, as this will negate the ability to invest historic overseas income in the UK without a taxable remittance.

Transition provisions

There are also transition provisions for pre 5th April 2017 income, which apply where the trust was settled by an individual who

  • has been UK resident since the settlement was made
  • was non-domiciled and assessable on the remittance basis throughout the period to 5th April 2017, and
  • was “interested in” the trust for income tax purposes.

The income also has to have arisen post 5th April 2009. If all of these conditions are met it follows that the income won’t have  been subject to UK tax, as the remittance basis would have applied.

The transition provisions allow the pre 6th April 2017 income to be invested in the UK without triggering a tax charge, by defining this as not being a remittance of the income which had arisen under the old rules.

The legislation works by treating the trustees themselves as not a “relevant person” for the purposes of determining whether there has been a remittance to the UK.

Practical issues

One practical issue is that the transition exemption only applies where the trustees remit pre 5th April income to the UK. If the trustees lend or subscribe this money to an overseas underlying company, and that company (a relevant person) invests in the UK, then there will be a tax charge.

The second practical issue is that the transition exemption only applies for the purposes of the income tax settlement legislation, and not for the purposes of the transfer of assets abroad legislation. So, if the trustees have an account comprising only pre 5th April 2017 income, but haven’t split this between income taxable under the settlements legislation and income taxable under the transfers of assets legislation, then this may prevent the income being used because it is not clear what part of it if any falls within the transition provisions.

Possible strategy- use of UK underlying company

One point to consider is whether using a UK underlying company to invest in UK assets would be appropriate. If the trust funds either debt or equity of such an underlying company with pre-5th April 2017 income, in addition to clean capital and post 6th April 2017 income and gains, then this is not a taxable remittance.

The use of an overseas underlying company no longer provides CGT or IHT protection for UK residential property, and if the current proposals are enacted, it will not provide CGT protection for any UK real property. The IHT protection for non-residential property may well be lost in future.

If the UK underlying company invests in UK shares, it may be a low tax vehicle as a result of the Substantial Shareholdings Exemption (where investments in shares are of more than a 10% holding) and the distribution exemption, which means that UK companies don’t suffer corporation tax on dividends from other UK companies. The shares in the UK underlying company are within the scope of UK IHT.

Thus a UK underlying company may be worth considering.

Income arising in that underlying company is not arising to a person abroad so if benefits are provided, this does not create an income tax charge under the transfer of assets abroad. The income in that UK company can be retained and potentially used to make loans to other underlying companies of the same trust, which should not taint the trust and thus can be interest free.

Therefore, if the trustees can identify the pre 5th April 2017 income which is within the transition provisions, this offers more flexibility for investments in the UK than would be available under Business Investment Relief.


The transition provisions were designed to encourage trustees of protected trusts to invest in the UK, but the fact that they don’t cover income assessable under the transfer of assets abroad legislation significantly restricts their usefulness in practice.

For a trust which can be confident in identifying that these provisions apply, it may be worth considering using a UK underlying company rather than an overseas underlying company.

As is often the case with the non-domicile changes in Finance Bill No 2 2017, the practical application is complex and offers many traps.

If you would like to discuss this or any of our other newsletter content in more detail then please contact us.

Finance Act No 2 2017 provided a “one-off” opportunity for individuals who are non-UK domiciled and who have a cash mixed fund account to cleanse that account in the period from 6 April 2017 to 5 April 2019. Disappointingly, HMRC only issued their guidance on 31 January 2018, having used up 10 months of the 24-month cleansing period.

What is cleansing?

Cleansing is a process of transferring funds from one offshore account to another, nominating the transfer and specifying whether the transfer is of income, gains or capital. This is very significant because if such a transfer (an offshore transfer) is not within the cleansing regime, the funds transferred are treated as a mixture of income, gains and capital in the same proportion as were in the transferor account.

Cleansing offers the opportunity for the money to be transferred into separate accounts for income, gains and clean capital, without triggering a tax charge. Cleansing can also segregate different types of income and gains, for example, foreign earnings can be split from foreign interest income. This would be beneficial where different income and gains had been subject to different foreign tax. Where a mixed fund contains taxed UK income, this can also be segregated out.

Cleansing allows the mixed fund to be segregated into separate accounts: one for each type of income or capital, and then the individual can choose to make remittances from those accounts where the tax charge will be lowest.

Theoretically, a well-advised non-dom will have used segregated accounts for different types of income and capital. However, even a perfectly operated segregation policy will have accounts which contain the proceeds of capital gains on an asset bought with clean capital, which are a mixed fund of capital gains and clean capital. Cleansing allows the clean capital to be remitted before the gain, without a tax liability.

Why act now?

As noted below, for many individuals there will be detailed work to be done to identify the composition of mixed funds and determine what nominated transfers should be made; identifying the composition of a mixed fund may involve re-calculating the composition of the fund on hundreds of occasions over the history of the account because the categories of money in the fund are altered every time funds are received into or paid out of the mixed fund. Therefore, although the window for cleansing is still open, the publication of the guidance may mean that it is now time to take action.

The fact that the cleansing guidance has been published 10 months after many individuals became deemed UK domiciled on 6 April 2017 gives rise to another practical issue. Where the individual holds an overseas asset which itself is a mixed fund (e.g. a capital asset which was purchased with clean capital and/or income), then in order to cleanse this, the asset will need to be sold because only cash can be cleansed. This then means that the capital gain will be realised. Most such non-doms will have paid the Remittance Basis Charge at some point and are therefore able to rebase their overseas assets at 6 April 2017. Thus, selling the asset in order to cleanse it will crystallise a gain on the increase in value since 6 April 2017, which is another reason to look at the scope for cleansing as a priority.

Cleansing once

Each mixed fund can be cleansed on a different date from any other held by the same person. The legislation says that once a nominated transfer from one offshore account (A) to another (B) has been made, you cannot nominate another transfer from A to B.

All of the examples in the HMRC guidance deal only with transfers where all of the nominated transfers out of account A are made on the same day, i.e. a nominated transfer of income from A to B is made on the same day as a nominated transfer of gains from A to C. The guidance says “You also don’t need to completely empty the original mixed fund account, but once a nominated transfer from an account has happened it can’t be nominated again into that same account.” We understand that this has been discussed with HMRC in consultations, and although it is not made explicit, HMRC do appear to interpret the legislation as requiring each mixed account to be cleansed on one day, where all of the nominated transfers take place.

Additionally, it is not possible to work around this restriction by making a nominated transfer of “mixed” cash into a new account, in order to create a second opportunity to cleanse into the same receiving accounts.

If the mixed account includes clean capital and UK taxed income, then in practice, these can both be cleansed into the same account and used to make remittances to the UK; however, this can’t be done by a nominated transfer of clean capital followed on a later date by a nominated transfer of taxed income.

Cleansing and rebasing

When an individual sells an overseas asset which qualified for rebasing at 6 April 2017, the proceeds of that gain will be a mixed fund, which comprises the original investment, the uplift to the rebased amount, and the capital gain. The uplift to the rebased amount is clean capital and cleansing the account which holds the proceeds will enable that amount to be remitted to the UK tax-free.

Dealing with uncertainty

The guidance gives a number of examples, and in all but one of these, the individual knows the composition of the mixed fund. In practice, it is often very difficult to establish this. The guidance says that if the individual does not know what the nature of a nominated transfer is, it will be treated as income. That does mean that if the transferred money is remitted, income tax will be due, i.e. it is the most unfavourable category for the individual. This confirms what we have seen in practice, that HMRC will not accept a best estimate of what the clean capital and gains are, they will only accept nominated transfers of known amounts of clean capital and gains.

There is a distinction though between cash for which the individual cannot identify the nature, and cash where the individual identifies the nature incorrectly. The guidance says that if it turns out that it is possible to identify the amount of income in the account, and the individual nominates and makes an income transfer which turns out to be a transfer of £1 more than the actual income, then the nomination is not valid. This means that the transfer is an offshore transfer which takes some clean capital out and leaves some income in the original account.

This means that individuals will have to weigh up whether it will be cost-effective to do more work to identify clean capital and gains in order to be able to cleanse and then remit with a lower tax charge.

The account does not have to be emptied as part of the cleansing, but in general the money which is left should only be of one category, as it is not possible to make a second nominated transfer into the same transferee account.

It is then necessary to consider carefully whether it would be safest to compute which elements of the mixed account comprise known amounts of clean capital, different categories of gains, and any categories of taxed income, and then nominate transfers of these, leaving untaxed income in the mixed account, together with any sums which can’t be identified.

Joint accounts

The guidance says that joint mixed funds can be cleansed even if only one of the holders is a qualifying person for the purposes of the legislation. This might be the case, for example, if one spouse was born in the UK with a UK domicile of origin.

The guidance says that the person who does qualify can identify which funds are theirs, and then make nominated transfers. This does appear to be a concession.

Sweeping income

The guidance notes that where interest arises in accounts to which funds have been transferred on the cleansing, this will make those accounts mixed funds, unless the interest is paid into a separate account. The interest will be taxed on an arising basis, so for remittance purposes it is like clean capital, and thus the interest could be paid into a clean capital account.

Record keeping

Although no formal claim has to be made to cleanse accounts, it is essential to retain records of the nominated amounts and the type of income or gains which are specified.

Pre-April 2008 funds

Where transfers into and out of the mixed fund were made before 6 April 2008, the guidance gives examples of applying a percentage approach to determine the amount of income and gains in the account.


Cleansing mixed funds is potentially a great opportunity for many non-doms but great care needs to be taken in identifying the composition of funds and in the execution of the cleansing itself. There is also a danger of embarking on time-consuming and costly exercises, only to find that the amount of clean capital that can be identified and cleansed is disappointing in comparison to the time, effort and costs of the exercise. For that reason, we recommend that a feasibility study is conducted as the first step to determine the likely benefits of cleansing.

If you would like to discuss the scope for cleansing mixed funds please contact us.

Trustees need to act now to ensure protected trusts retain that status after 5 April 2017.

Finance Bill 2017 No.2 includes legislation to protect trusts settled by individuals before they became deemed UK domiciled from the full impact of the changes to the taxation of non-domiciles. Our previous article How Do You Avoid Tainting Protected Trusts? set out the importance of ensuring that such trusts are not “tainted” by an addition of value after 5 April 2017.

Once the settlor has become deemed UK domiciled, a trust can be tainted where property or income is provided directly or indirectly for the purposes of the settlement by the settlor, or by the trustees of any other settlement of which the settlor is a beneficiary or settlor. In particular, a loan to a protected trust where the interest is below the amount which would be charged on arm’s length terms could taint the trust; the legislation defines arm’s length by reference to the official rate of interest.

There is a transition period which allows existing loans to be put onto an appropriate basis before 5 April 2018. Where an individual became deemed UK domiciled on 6 April 2017, a loan will not taint the trust provided that the loan becomes a loan on arm’s length terms before 6 April 2018. It is also necessary for interest to be paid before 5th April 2018, as if those arm’s length terms had been in place for the whole of 2017/18.

The steps which need to be taken in respect of a loan are not complex, however, the practical difficulty is likely to arise in ensuring that all of the loans which could taint the trust have been identified.

This legislation applies to loans to and from the trustees of the protected trust. But a trust could also become tainted if a “cheap” non-arm’s length loan was made to an underlying company of the trust, since that would be a provision of property, and the legislation does not specifically cover this. The HMRC guidance on protected trusts (issued on 31 January 2018) does not address this directly, however, it seems prudent to ensure that loans to underlying companies are also put onto the correct basis before 5 April 2018. While a trust is not tainted where property is provided with no intention to confer gratuitous benefit, this exclusion does not apply where property is provided under a loan. Therefore, a loan to an underlying company which is not on the defined arms’ length terms does appear to create a risk of tainting.

If a company owned by the settlor makes a loan to a protected trust or an underlying company of a protected trust, then if it is not on arms’ length terms this could be an indirect provision of property by the settlor, depending on the circumstances. Similarly, the trustees of another trust might add value to the protected trust where there is a loan from that trust or its underlying companies to the protected trust or its underlying companies.

It is also possible that an interest-bearing loan from a trust to a settlor could taint the trust, although this is more unusual.

There could therefore be a reasonably substantial exercise to identify all of the loans which have the potential to taint a protected trust. Trustees will need to start work on this in good time to be able to ensure that interest payments are made before 5 April 2018.

An individual who is not yet deemed domiciled can settle a trust which can be a protected trust. Here, there are no transition rules for loans, and so loans will need to be considered and put on arms’ length terms before the date on which the settlor does become deemed domiciled. This will be an important issue to consider if the settlor will become deemed domiciled on 6 April 2018.

If you would like to discuss this or any other tax issues, please contact us.

On 15 January, the Director General of the Panamanian tax authority signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA). Panama is the 98th jurisdiction to join the CRS MCAA, which is the prime international agreement for implementing the automatic exchange of financial account information under the Multilateral Convention on Mutual Administrative Assistance.

Panama will begin exchanges of information on 30 September 2018. It is no coincidence that this is the final date by which any unpaid tax liabilities related to offshore assets or structures must be reported to HMRC under the new “Requirement to Correct” legislation. Any unpaid tax liabilities with an offshore connection that are discovered after 30 September 2018 will be dealt with under the “Failure to Correct” legislation, with penalties that can in some circumstances be a multiple of the tax actually due.

If you have any concerns about overseas assets or structures, please contact us.

HMRC has published guidance on how to postpone the loan charge for disguised remuneration loans due to arise on 5 April 2019. The loan charge will apply to anyone with a loan received through a disguised remuneration tax avoidance scheme that is still outstanding on 5 April 2019. HMRC will agree to postpone the charge in certain limited circumstances but an application must be made by 31 December 2018.

Whilst this may appear to be good news, the opportunity to postpone is unlikely to be available to many people with outstanding loans.

A postponement will be agreed only if you either:

  • get approval from HMRC that the loan in question is classed as a qualifying fixed term loan, or
  • paid an Accelerated Payment Notice in respect of the income on which the loan charge is based that is equal to or more than the outstanding loan balance

The criteria will not be achievable for many who have loans outstanding. The value of APNs paid against any avoidance scheme will be based on the tax HMRC believes to be in dispute and not the contributions that passed through the planning. Consequently, APNs paid by an individual are only likely to be sufficient to postpone the loan charge if the outstanding loan balance is less than 45% of the amount contributed to their sub-fund or sub-trust for highest rate taxpayers, 40% for higher rate taxpayers or 20% for basic rate taxpayers.  In many cases, a large proportion of the contributions have been taken as loans and there will be no scope to postpone the loan charge without at least a partial repayment being made in addition to the APN tax that has been paid.

HMRC has also laid down strict terms for what will be recognised as a qualifying fixed term loan. There will be relatively few loan arrangements that will meet HMRC’s criteria. It applies to loans:

  • made before 9 December 2010
  • with a term of 10 years or less, and
  • which are not excluded loans – the loan cannot have been replaced with another loan, or its terms have been altered to meet the 10 year term or change the date on which it must be fully repaid

Qualifying fixed term loans must also be commercial in nature. In practice this means that:

  • the loan repayments are ‘qualifying payments’ – you must have made regular repayments at intervals of no more than 53 weeks and be able to send HMRC evidence of this, and
  • the loan will be a ‘commercial loan’ if it was made by a lending business or it was on terms that are comparable to loans that were available to members of the public

An application to postpone must be made direct to HMRC, which will then give a decision. At least there will time to resolve any uncertainty on the loans that may potentially qualify.

Further information and links to the relevant forms can be found here.

In our Newsletter last month, we commented on the proposal in the Budget Statement for transferring a PAYE liability from an employer to an employee where the employer is unable to pay the liability.  The Budget Statement indicated that the power for HMRC to transfer an unpaid PAYE liability (on a DR loan charge in April 2019) would only apply in cases where the employer was not located in the UK (“offshore employers”).

In a technical note dated 1 December, HMRC has confirmed that the new power, included in Part 4 of the draft Finance (No. 2) Bill which was also published on 1 December, will be restricted to unpaid PAYE liabilities of offshore employers. Unpaid PAYE liabilities of employers located in the UK will not be affected by the new power.

However, the technical note also confirms that HMRC will use existing powers (in Regulations 80 and 81(3) of the PAYE Regulations) to collect unpaid PAYE liabilities of UK employers from employees who have received disguised remuneration, including liabilities under the April 2019 loan charge.

One positive aspect included in the technical note was the clarification, in cases where an employer is unable to pay including cases where the employer has been dissolved or no longer exists, that the employee will not be liable for any unpaid Class 1 NICs due.

This latest technical note from HMRC, read in conjunction with their settlement terms published on 7 November, provides some much needed clarity on where individuals and employers now stand on the potential cost of settling their PAYE liabilities in relation to DR schemes. It is now clear that the ability of HMRC to collect tax from employees before 2019, in relation to contributions made to EBTs and EFRBS, will be determined by reference to the “step” in respect of which the PAYE liability arises. If the PAYE liability arises on the cash contribution made by the employer to the EBT or EFRBS under the “redirection of earnings” principle on which the Supreme Court based its decision in the “Rangers” case, HMRC will be unable to collect any unpaid PAYE liabilities from employees before April 2019, except in cases where they are able to transfer the labilities to directors under provisions in insolvency law.

In cases where the redirection of earnings principle applies, this could provide useful breathing space and an opportunity to prepare for future tax charges.

Conversely, if the obligation to operate PAYE arose on the “allocation” of the contributions by the trustee, on an appointment or transfer to a specified sub-fund, sub-trust or a trust for a specific individual or family, HMRC will be able to collect an unpaid PAYE liability from an employee, under existing powers in the PAYE regulations, before 2019. It remains to be seen whether HMRC will actively pursue collection of unpaid PAYE liabilities from employees under their existing powers or will wait until 2019 to collect the tax due. Every case will, presumably, be judged by HMRC on its own merits.

We now have as complete a picture as we are ever likely to have and in that context, it now makes sense for all employers and employees with disputed PAYE liabilities from DR schemes (or, in other cases where a loans charge will arise in April 2019) to evaluate their circumstances and decide on the best option for them in bringing the dispute to a close or, in understanding what liabilities will arise in April 2019.

 If you would like to discuss your own situation, please contact us.

Thanks to the Chancellor, the UK is about to become a little less attractive to overseas property investors. The recent UK Budget announcement included plans to ensure that non-resident investors in UK commercial property will, from April 2019, pay UK capital gains tax or corporation tax on gains. Although this is labelled as a consultation, it is very clearly stated that the strategic decision to extend the scope of UK property taxation has been made and the consultation is simply about the details of its implementation.

The measures announced also extend the scope of the existing Non-Resident Capital Gains Tax (NR CGT) regime for UK residential property. That regime is extended beyond closely held companies, trusts and individuals to include diversely held investors, meaning that institutional investors and investment funds as well as non-close companies will now be liable to the NR CGT charge.

Disposals of “envelopes”

Another new measure that will apply from April 2019 to both commercial and residential property will ensure that gains on disposals of interests in entities that are “property rich” will be chargeable to UK tax. For these purposes, an entity that is “property rich” is defined as deriving 75% or more of its value from UK land. The 75% test will be based on the gross asset value of the entity and, unhelpfully, will ignore debt.

There is an additional test to determine whether a disposal of a property rich entity has taken place. This test requires that the non-resident owner of the interest in the entity or parties related to them must hold at least a 25% interest in the entity being disposed of or have held such an interest at any time in the 5 years ending on the disposal date. Additionally, the interests of related parties will be aggregated in the 5 years ending with the disposal to determine whether the 25% test has been met.

Funds and life assurance

The 25% test has been introduced to prevent small investors being liable to UK taxes on disposals of interests in investment vehicles in relation to which they have little knowledge or control over investment strategy. However, non-UK resident investors in UK Collective Investment Schemes will be liable for NR CGT if the fund meets the 75% test and the non-resident investor meets the 25% test. It seems unlikely there will be many instances where a non-UK resident investor will find they are liable to NR CGT as an investor in a UK fund.

The situation is different for non-UK funds, as the fund itself will be liable to NR CGT if it holds UK property directly or, more commonly, via a special purpose overseas company and disposes either of the property itself or of its interests in the special purpose company, provided in the case of the latter that the property rich test is met and also the 25% test.

Additionally, the existing exemption for life assurance companies from the existing NR CGT regime is being withdrawn from April 2019; this is likely to be seen by HMRC as closing down any possibility of structuring UK real estate investments through life bonds by private investors to avoid NR CGT.


As with NR CGT for residential property, there will be rebasing to the start of the regime. This will be straightforward where UK property interests are directly owned but it is likely to be complex where the interests are indirect and are held as shares in unlisted companies and private funds. Interestingly, rebasing for the new charges will either be on the April 2019 value or the original acquisition cost of the property. Unlike the existing NR CGT regime for residential property, there will not be an option to time apportion the gain in a straight line over the full ownership period pre and post April 2019. Also, the base cost for indirect interests will be determined solely by the value at April 2019.

Compliance issues

As is now the custom, there is an anti-forestalling rule. This applies to counteract the effect of any arrangements entered into from 22 November 2017 onwards to obtain an advantage in relation to the new provisions where those arrangements involve double taxation agreements. In plain English, this means that using treaty protection that restricts taxing rights over, for example, the disposal of shares in a non-UK company, to the home jurisdiction of that company won’t be allowed. However, if as at 22 November 2017 the company in question already meets the property rich test, the 25% test is also met, and the company is in a jurisdiction where gains are treaty-protected, it would seem anti-forestalling would not apply as no arrangements will have been entered into to create an advantage in relation to the new regime.

HMRC has recognised there will be challenges to ensure that non-UK residents comply with the new regime. The reporting regime for non-corporate investors will mirror the existing requirement under the NR CGT regime for residential property to file a return within 30 days of completing the transaction. Companies will have to register for UK corporation tax at the time of the disposal but the normal corporation tax time limits for filing and payment will apply. However, an additional reporting requirement is proposed for indirect disposals by non-UK residents. Broadly, an acting UK adviser (the type of adviser is not specified) who is aware of the transaction and cannot be certain that the transaction has been reported to HMRC will have the obligation to report the transaction to HMRC within 60 days.

Finally, the consultation document makes no mention of interests in UK commercial property becoming “relevant property” for UK inheritance tax purposes, as was the case with UK residential property interests with effect from 6 April 2017. If that remains the case, non-UK domiciled investors may still wish to hold UK commercial property through offshore entities for IHT purposes.

Non-resident investors are now faced with some difficult choices to make between now and April 2019 and we, and more pertinently, the UK property industry, await developments with interest.

If you would like to discuss any of the above, please contact us.

The Budget Statement provided only very brief but potentially significant details of the government’s proposed measure for transferring an income tax liability from an employer to an employee in respect of an April 2019 disguised remuneration loan charge.  Further details will be provided in the draft Finance Bill 2018 and in a specific technical note which is due to be published on 1 December.

Rather surprisingly, the Budget details indicate that the measure should only apply to cases where the employer is based offshore and is, therefore, outside the scope of the PAYE regulations.  In our experience, the vast majority of company EBT and EFRBS’ schemes were set-up by onshore employers and the measure should not, therefore, apply but a considerable number of employers used in “Contractor schemes” were based outside of the UK and, individuals who have used such schemes to avoid income tax on their income from consulting services in the UK, could now face significant liabilities on outstanding loan balances in April 2019.

Anyone who may be caught by the proposed measure should now be considering whether the disguised remuneration settlement terms published by HMRC on 7 November provide a lower cost opportunity to settle any outstanding tax and NIC liabilities compared with the liabilities that will otherwise arise in April 2019.

However, employees (and former employees) of onshore employers who, it appears, should not be affected by the measure (based on the Budget details) are not necessarily “home and dry” should their employer be unable or, for some other reason, fail to meet any PAYE liabilities in relation to their disguised remuneration. The PAYE regulations already provide HMRC with rights to recover liabilities from an employee in certain circumstances. Importantly, the regulations do not rely on whether a loan has been made or is still outstanding but are concerned with the original contribution to an EBT or EFRBS and/or the allocation of the contribution to a separate trust, sub-fund or sub-trust.

Therefore, any employee (or former employee) who has received disguised remuneration but is unaffected by the loan charge in 2019 will still need to understand whether HMRC can make a direction to transfer a PAYE liability to them personally. This will require a careful analysis of the specific facts in each case.  Additionally, and especially in cases where the PAYE regulations do not allow HMRC to recover PAYE liabilities from disguised remuneration paid to directors of a company, it is HMRC policy to use insolvency law in appropriate cases in order to recover unpaid PAYE (and NIC) liabilities from the directors.

We are dealing with a substantial number of disguised remuneration cases and if you would like to discuss your situation, please contact us.

If you’re an employer, employee or a contractor who’s been involved with a disguised remuneration scheme, you may have been wondering how the new tax charges treating loans as employment income on 5 April 2019 will affect you. HMRC has been thinking about it too, and this has heavily influenced their new guidance on voluntary settlements of EBTs, EFRBS and Contractor Loan schemes.

Following an embargo on settlements, HMRC has now published revised settlement terms. The announcement from HMRC comes in the wake of the Supreme Court judgment in July on what has become known as the “Murray Group Holdings”, “Rangers” or “Big Tax Case”. The new settlement policy provides welcome clarity and also some good news in relation to certain aspects of settlement where HMRC is now taking a more pragmatic view than previously. However, other aspects of the policy are less welcome and reflect HMRC’s bargaining power in the context of the 2019 legislation.

Importantly, HMRC has not committed itself to a policy of settling all cases on the basis of the decision in “Rangers” that EBT contributions were “a mere redirection of earnings”. Instead, the point at which PAYE is considered to have been triggered will be decided on the facts of each case. In practice, this will often be a choice between the time funds were contributed to an EBT or EFRBS for the benefit of most or all employees or the point when funds were appointed to a sub-trust or sub-fund. In many cases these two events are almost simultaneous. However, even in such cases the question of whether the PAYE is triggered by a real or notional payment by the employer could have a major impact on the ability of HMRC to recover tax from an individual before the new loans charge in 2019; this will be relevant in cases where the employer is not able to fund the liability.


Key points of detail for employers, employees and contractors: 

  • Firstly, there are improved terms for contractors. HMRC has given up on the idea of taxing the full amount paid to the intermediary, which means that only the net amount after fees will be taxable. Additionally, HMRC will not insist on NIC being paid where the contractor has become an employee.
  • PAYE & NIC won’t be due on contributions used to pay expenses of the trust; this is new and welcome, but the guidance doesn’t provide full details of the expenses that will be covered.
  • “Netting down” for NIC to reduce the PAYE liability is still available if this is allowed by the trust deed and provided the NIC liability is paid out of the trust fund. However, in many cases the only trust assets are loans to beneficiaries, so part-repayment of loans will be needed to generate the saving, which may not be practicable. Even if it is, the loss of corporation tax relief on the NIC expense if the employing company would otherwise have met this cost needs to be considered.
  • A corporation tax deduction will be given for the original contribution in the year of contribution only if that year is open – although in many cases the corporation tax deduction will already have been claimed and therefore becomes “guaranteed”.
  • A corporation tax deduction for promoter fees will be allowed; this is also new and welcome. Again, the CT deduction will be given for the original contribution in the year of contribution only if that year is open.
  • If no CT deduction was claimed previously on the contribution, it can be claimed in the year of settlement or the earliest open year.
  • If a Regulation 80 PAYE Determination was issued for tax at Basic Rate, the balance of tax due must be settled to prevent a 2019 loan charge, but interest won’t be charged on the top-up tax paid; this is disappointing, as we would expect the settlement to be limited to the PAYE & NIC that the employer would have been liable to account for at the time.
  • Section 222 tax charges won’t arise if the trust deed includes an obligation to reimburse the employer for PAYE and the trustee or the employee actually pays the tax. This represents a significant tightening of the policy under the previous settlement opportunity and is likely to mean that more section 222 charges will arise. However, in many cases there is no open personal tax enquiry on the employee for the year in question and this will prevent a section 222 charge.
  • It’s important to remember that if the original PAYE liability arises on a real payment by the employer (rather than a notional payment such as transfer to a subfund) and the employer pays the tax and is not reimbursed, there will be a liability for the employee under section 223. This is because section 223 charges arise in the year in which the PAYE is paid, not the year it was originally due.
  • Although not mentioned in the HMRC guidance, there is another important point on section 223. If the employer has paid PAYE under an Accelerated Payment Notice and subsequently withdraws their appeal against a Regulation 80 Determination, perhaps due to the issue of a Follower Notice or because they’re settling with HMRC, a failure to reimburse the PAYE paid under the APN will also result in a section 223 charge. Therefore, the implications of settling or withdrawing appeals need to be carefully considered.
  • Employers who have already settled with HMRC under the previous option of disclaiming the CT deduction will have to brace themselves for further liability in 2019 if any loans are outstanding; this is very unfortunate but not entirely unexpected in the context of HMRC’s objectives for the 2019 loans charge.
  • HMRC have confirmed that PAYE & NIC won’t be charged on accrued and unpaid loan interest when loans are forgiven as part of the settlement. The guidance is silent on the question of whether there will be tax for the employee under section 731 on the unpaid interest but it seems unlikely that there is any “available relevant income” to provide a benefit in these circumstances.


To describe the options as complex is an understatement; in reality there are so many variables in the mix that identifying the right course of action can be very difficult.

In cases where HMRC is out of time to collect any money before 2019 that doesn’t necessarily mean that doing something before then – whether it’s settlement with HMRC using voluntary restitution or something else – is a bad idea. In fact, the complexity of the tax legislation, HMRC policy and the fact patterns in individual cases mean it is essential to review options to identify the optimal course of action as soon as possible.

Please contact us if you’d like to explore your options.