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ITEPA 2003 s222 and IHT Charges On EFRB's

Confusion regarding when charges will apply when a client settles an EFRB with HMRC

If anyone could provide some assistance with the following that would be most helpful.

A client (UK individual, sole director/shareholder in UK company) sets up an EFRB in 2011. His Limited company pays £100k in the trust, the money flows through to the sub-trust then as a loan to the individual.

£100k shown on the Limited company P+L in 31/03/11 year end and corporation tax claimed (no addback).

HMRC have now (2017/18) treated the £100k as income on the individual, asked for £60k PAYE plus £12k interest. Penalties to be determined.

The Limited company has settled the £60k PAYE and £12k interest with HMRC and is waiting for closure.

I am hoping someone can explain how ITEPA 2003 s222 may be relevant (hopefully not). The way I am reading the legislation is that the client (the individual) must pay the £60k back to the Limited company with 90 days of the Limited company paying the £60k to HMRC. Am I correct or have I misunderstood this completely? If I am correct the client received £100k orignally, is now due to pay £60k to his Limited company and therefore effectively only received £40k net? I thought the HMRC calculation was based on £100k being the net amount, this then being grossed up to £160k gross, therefore £60k PAYE due?

Could anyone also please briefly explain the IHT consequences when the trusts are closed.

Thank you in advance for your help.

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22nd May 2018 17:00

Isn't this s222 charge coz it's a post April 2011 P7A relevant step (which takes precedent over s394 EFRBS charges)?

As there's a loan he will also need to worry about the 2019 loan charge.

A s72 IHTA exit charge may arise on the trust's closure.

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to Justin Bryant
22nd May 2018 17:32

Hi

Thank you for the reply but I do not know what 'a post April 2011 P7A relevant step (which takes precedent over s394 EFRBS charges)' means?

The EFRB was set up on 01/04/11.

I thought the 2019 loan charge only applied if the client hasn't settled with HMRC before April 2019?

Regarding your s72 IHTA comment am I correct in thinking the following rates therefore apply?
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm42802

Thanks again

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