Exiting Remuneration Trusts raise a number of issues that need to be addressed. Finding a tax solution (particularly one that is acceptable!) may have become easier for some with HMRC’s new Settlement Terms recently announced. Applications to HMRC have to be with HMRC by 31 July 2022, with all computations. Even then there may still be other issues to be addressed.
These Settlement Terms have strict entry criteria and do not apply to contributions made to either Employee Benefit Trusts (EBTs) or Employer Financed Retirement Benefit Schemes (EFRBs).
HMRC believe that they have grounds to say that the scheme design may be fundamentally flawed and there has been no actual transfer of funds to the trust. In this way, HMRC argue that all the scheme transactions can be unwound.
However, I am not sure that Trustees will agree.
What are the Settlement Terms?
HMRC are offering different terms depending upon the specific facts and circumstances of each taxpayer and scheme. Not surprisingly, the loans previously advanced are to be taxed either as distributions or salary, plus interest. As a consequence, the terms are likely to be seen as being more complicated and needing careful consideration.
These Settlement Terms also apply to Creditor Protection Trusts.
HMRC may agree to other structures with a very similar profile to qualify for the same terms.
What are the other issues to be addressed besides tax?
Many Trust Deeds were written in a way that specifically excluded anyone who was a shareholder/director from benefitting from the trust. That is why loans were advanced in the first place.
Trustees may still be unable to release the funds by cancelling the loans for a variety of reasons. Trustees have to follow all the applicable law, not just tax law. A trustee has to act in the best interest of the trust. This is irrespective of the fact that it can be evidenced that a Settlement has been reached with HMRC.
Tax law does not override trust law.
And let’s not overlook the stress of it all. The stress the whole family has endured for many, many years and the effect all this has had on what was otherwise a highly profitable business.
Does the doctrine of mistake apply?
A number of legal cases have been heard under the doctrine of mistake with mixed results. In the tax case of Dukeries Healthcare Limited v Bay Trust International Limited, aside from the scheme promoter, Bay Trust International of Belize and Minerva Trust, Jersey were both identified. Frustratingly for HMRC, both entities were offshore in Belize and Jersey respectively.
But why Belize and Jersey?
Both are offshore so far as the UK is concerned and therefore transactions can be less transparent than if they were conducted on the UK mainland. Following the monetary trail through the Remuneration Trust is more difficult for anyone not directly involved, such as HMRC. Which is why higher penalties were introduced and may now be applicable in reaching any Settlement.
How can all these issues be addressed?
Dealing with Remuneration Trusts has never been straight forward. All the relevant facts need to be identified. All the outcomes and associated risks need to be considered.
I can explain and resolve the tax consequences but more importantly I work with solicitors and trustees (both UK and offshore as necessary) in order to resolve every aspect in order to draw a line under the whole matter.
If you wish to discuss your circumstances and consider what can be done, please contact me.