Why employee benefit trusts (EBTs) will continue to be an interesting area for tax advisers over the next few years, writes Nigel Holmes (Armstrong Watson).
EBTs have been in the tax press for a number of years now, in the main as a result of the Murray Group Holdings case ([2015] CSIH 77) involving Glasgow Rangers FC. However, with ‘disguised remuneration’ once again being addressed in the March 2016 Budget, together with the increased powers HMRC has in respect of enquiries, I thought it would be worthwhile summarising where we are now with EBTs.
1. Enquiries: HMRC will continue to pursue these. Where the EBT was registered under the disclosure of tax avoidance schemes (DOTAS) rules, then one should expect an accelerated payment notice (APN) to pay the tax, regardless of the state of play in the enquiry. Also expect the outcome of the final appeal in the Rangers case at the Supreme Court to influence proceedings.
2. Investment growth: HMRC has extended the deadline to settle tax on funds entering into EBT structures yet take advantage of a ‘paragraph 59 credit’ to extract such funds without a further tax charge to include any investment growth. This offer expires 31 March 2017, thereafter investment growth will not attract this relief.
3. Loans: Many EBTs and family sub trusts lent funds to beneficiaries on beneficial terms. In the March Budget, HMRC announced that these loans need to be repaid, or tax settled thereon, by 5 April 2019, otherwise they will become taxable then. This brief announcement raises many questions and concerns, and it is of course retrospective in nature. It is believed HMRC will assess loans even where enquiries have been opened and closed. We await the consultation, promised this summer, with interest.
4. Inheritance tax: Those who have settled or intend to settle soon based on points 2 or 3 above may face an unexpected IHT charge as HMRC do not treat the ultimate exit as being relievable under the exit charge provisions. We continue to disagree with this view.
5. Anything else: Even if your EBT is not caught by any of the above, we would recommend a review to ensure there are no areas of risk and look at your options.
Why employee benefit trusts (EBTs) will continue to be an interesting area for tax advisers over the next few years, writes Nigel Holmes (Armstrong Watson).
EBTs have been in the tax press for a number of years now, in the main as a result of the Murray Group Holdings case ([2015] CSIH 77) involving Glasgow Rangers FC. However, with ‘disguised remuneration’ once again being addressed in the March 2016 Budget, together with the increased powers HMRC has in respect of enquiries, I thought it would be worthwhile summarising where we are now with EBTs.
1. Enquiries: HMRC will continue to pursue these. Where the EBT was registered under the disclosure of tax avoidance schemes (DOTAS) rules, then one should expect an accelerated payment notice (APN) to pay the tax, regardless of the state of play in the enquiry. Also expect the outcome of the final appeal in the Rangers case at the Supreme Court to influence proceedings.
2. Investment growth: HMRC has extended the deadline to settle tax on funds entering into EBT structures yet take advantage of a ‘paragraph 59 credit’ to extract such funds without a further tax charge to include any investment growth. This offer expires 31 March 2017, thereafter investment growth will not attract this relief.
3. Loans: Many EBTs and family sub trusts lent funds to beneficiaries on beneficial terms. In the March Budget, HMRC announced that these loans need to be repaid, or tax settled thereon, by 5 April 2019, otherwise they will become taxable then. This brief announcement raises many questions and concerns, and it is of course retrospective in nature. It is believed HMRC will assess loans even where enquiries have been opened and closed. We await the consultation, promised this summer, with interest.
4. Inheritance tax: Those who have settled or intend to settle soon based on points 2 or 3 above may face an unexpected IHT charge as HMRC do not treat the ultimate exit as being relievable under the exit charge provisions. We continue to disagree with this view.
5. Anything else: Even if your EBT is not caught by any of the above, we would recommend a review to ensure there are no areas of risk and look at your options.
