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Very interesting successful FTT rescission case

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10780/TC06815.pdf

It seems that under Lobler you can argue rescission ab initio for mistake at the FTT without having to go to the high court for formal equitable relief for rescission there (that would bind HMRC).

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10780/TC06815.pdf

This could be a useful potential defence against the 2019 loan charge etc. (the mistake was that you thought Rangers did not apply to your EBT tax planning when you implemented it).

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20th Nov 2018 20:03

Is it not implicit that you would have to repay the loan, which is now rescinded? If you do that before 6 April, the April tax charge doesn't hit anyway.

Genius.

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to Tax Dragon
21st Nov 2018 10:14

No, the entire EBT is rescinded ab initio and nominees suddenly appear rather than borrowers/lenders etc. and HMRC are bound by that. In short, trust law trumps tax law.

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to Justin Bryant
21st Nov 2018 11:20

Meaning that it wasn't the trustees that lent (because there were no trustees), it was the employer [or persons acting on behalf of the employer with funds provided by the employer, which is the same thing].

How does that improve the tax position?

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to Tax Dragon
21st Nov 2018 12:31

Obviously coz employer loans aren't subject to the Rangers EBT decision or P7A!

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to Justin Bryant
21st Nov 2018 13:05

And 20 years of BIK tax (plus another tax hit when you decided you'd keep the money) would be better? I assume HMRC would argue they could go back that far.

Presumably too it's the employer would have to want to rescind. Why would they do so, faced with the P11d penalties etc?

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to Tax Dragon
21st Nov 2018 14:02

I challenge you to find me a tax case/legislation where a rescinded contract results in penalties and/or a 20 year assessment period!

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to Justin Bryant
21st Nov 2018 14:21

I challenge you to show any link at all between the case you have cited and the point you are making.

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to Tax Dragon
21st Nov 2018 14:44

If you Google "rescinded EBT cases Guernsey mistake pitt holt" all should be revealed.

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to Justin Bryant
21st Nov 2018 15:08

You persist in thinking the April 2019 charge relates to past events. It doesn't. It relates to your current decision not to repay the debt that you owe.

But good luck with your argument.

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to Tax Dragon
21st Nov 2018 16:09

It does in a sense relate to a past event in that the April 2019 loan charge would not arise if the trust had never made that loan.

If Justin's argument were to be successful, and the transaction rescinded, then there would be no loan from a trust for the April 2019 loan charge to apply to - but there would be a loan from the employer as you suggest and the potential consequences of that.

If what I believe Justin is suggesting is possible, then could this provide an opportunity for those with outstanding enquiries and a possible April 2019 loan charge to argue this route, and then repay the loan to the employer over a number of years. You'd have to do the calculations to decide if that would present a cheaper option than settling.

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to Lone_Wolf
21st Nov 2018 16:57

You're a wise (if somewhat eccentric) wolf.

Rescission might on occasion be relevant - helpful even - where you were unaware of (the present tax consequences of) what you were doing. I can't see how it is remotely relevant to the April 2019 charge - which can be avoided by repaying the debt beforehand.

I am not moralising - just second guessing what a Tribunal might say. Which is that those who have spent the proceeds of a repayable-on-demand loan [and are therefore unable to repay it before the tax charge arises] are compromised by that extravagance, not by the tax charge. (Contrast the comments in the cases that Justin cites.)

Edit: by "present" I meant "immediately consequent" or maybe "concurrent".

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to Justin Bryant
21st Nov 2018 18:04

But, unlike the case link, with EBTs there are four transactions to consider,
not one? The taxpayer’s bad choice of using a tax scheme, the company settling funds, the trustees deciding to make a loan and the taxpayer accepting the terms of that loan.

Given the trustees hold a valuable asset for beneficiaries, which may include minors, surely the trustees would need to be a willing party to any claim for set aside, to protect their position?

If the transactions have not yet caused unexpected tax (eg HMRC out of time to go after employer, taxpayer doesn’t wish to settle) and the loan charge is a new tax that only hits if the loan is not repaid, where is the mistake to be set aside?

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to Justin Bryant
21st Nov 2018 18:40

You’re clutching at straws.

Most of the employers who made the ‘loans’ no longer exist, meaning the ‘loan’ no longer exists as per your argument, which leaves the taxpayer in a worse position.

There is a lot of political pressure on HMRC and the government to only apply the rules on post 2016 loans - whether one agrees with this is a different question.

https://www.parliamentlive.tv/Event/Index/04db0122-8f35-446e-adde-9506e2...

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22nd Nov 2018 10:28

None of the critical comments above are made by people who know what they are talking about here. I suggest you consult with a tax lawyer who can explain this works potentially. Only a tribunal/court will tell you it does not work (and no-one knows the answer there (yet) of course).

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