In January 2025, the government commissioned an independent review of the loan charge. In the Budget delivered on 26 November 2025, the government announced that it is accepting all but one of the review’s recommendations and, in some areas, is going further, including writing off £5,000 of each individual’s liability in addition to the review’s recommendations. The review recommends that the government introduce a settlement opportunity to encourage those who have not settled their position with HMRC to do so.
The proposals
The proposed settlement opportunity will be available to both groups of taxpayers (employers and employees) who have been participants in any loan scheme. The settlement opportunity will substantially reduce the amount that taxpayers will have to pay, particularly those with the lowest liabilities (typically those on the lowest incomes). Where people decide to settle, most individuals could see reductions of at least 50% in their outstanding loan charge liabilities and an estimated 30% could be able to settle without paying anything.
The key features of the proposed settlement opportunity and my specific comments are that:
- Instead of the total loans being all charged at the tax rates that apply to the loan charge (and all other income) in the one year of 2019, the new settlement opportunity will be worked out based on the tax rates they would have paid in each of the years that the original loans were made. This can mean that an overall lower amount of tax will fall due as more tax may be due at the basic rate (20%) than at the higher (40%) and additional rates (45% and 50%).
- The taxable amount will be reduced to account for historic promoter fees, up to a maximum discount of £10,000 per year for each year a taxpayer used a loan scheme. This can be helpful where the data is no longer held.
- Further to the recommendations in the review, the taxable amount will be reduced by a flat amount of £5,000. For some taxpayers, this may reduce the amount that they are due to pay to zero.
- No late payment interest will be charged.
- It is estimated that many taxpayers could pay around 20% less than previously expected.
- Any inheritance tax that would have been due as a result of the use of loan schemes will be written off. The government has not estimated the savings that this may bring.
- Where a person is unable to pay the new amount in full immediately, HMRC will agree a Time to Pay Arrangement tailored to their ability to pay. A taxpayer can choose to pay the new liability over 5 years without discussing affordability with HMRC. But whilst historical interest to date is written off, forward interest will apply over the period of the Time To Pay Arrangement itself.
- The maximum reduction for any one person will be no greater than £70,000 on what the person already owed because of the loan charge. It is expected that this applies to all participants in the scheme.
- Promoters of tax avoidance schemes will not be able to access the new settlement opportunity. It will be available only to scheme participants.
Next steps
In March/April 2025, HMRC wrote to all participants in loan schemes that had not settled with HMRC. Each letter made it clear whether or not in HMRC’s view, the participants were subject to the review that was started in January 2025. The proposed new settlement opportunity is only available to those taxpayers HMRC believe are covered by the review.
In all other cases outside of the review, HMRC will continue to work with taxpayers to resolve their cases in line with existing legislation and case law.
You are advised to tell your clients that this may be the last opportunity to settle. However, it is unlikely that the necessary legislation and proposed new settlement opportunity will be available before Royal Assent is given to the Finance Bill 2025/2026, much before March/April 2026.
If you wish to discuss the content of this article or a particular client case, don’t hesitate to get in touch with me at paul@pmc.tax or on 07979 313 010 for a free initial consultation.