Tax avoidance using loans or fiduciary receipts
14 May 2019
This latest Spotlight contains information about a tax avoidance scheme that tries to disguise income and other taxable profits as loans or fiduciary receipts by using a remuneration trust.
This scheme claims to provide remuneration or profits free of tax and is different to the scheme used by contractors referred to in Spotlight 33.
How the scheme claims to work
The scheme user contributes to a remuneration trust, with trustees based offshore. The scheme user could be a:
- self-employed individual
- partner in a partnership
- company or a company director
The remuneration trust is set up in a contrived manner and is claimed to provide benefits to individuals (beneficiaries), other than the scheme user. The alleged beneficiaries are individuals employed in the trade or profession of lending money.
The trustees take no action to identify or reward the alleged beneficiaries because the trust contributions are always intended to be used by the scheme user.
As part of the scheme arrangements a personal management company is set up and controlled either by the scheme user or connected party supporting the scheme.
The money contributed to the remuneration trust is actually paid - often minus the 10% scheme fee - to the personal management company. This allows the scheme user full access to the funds.
How people are paid
The scheme user accesses the contribution to the remuneration trust through unsecured loans or fiduciary receipts from the personal management company. It is claimed to be tax-free and on terms not available from high street lenders.
Interest and capital repayments on the loans are rarely made. The receipts from the personal management company are often used by scheme users as living expenses. In some cases, the scheme user decides how the money is invested by the personal management company.
The scheme is marketed by firms offering wealth management strategies. HMRC understands that scheme users are told that they will always remain in control of the funds.
Go to GOV.UK for full details about what to do if you are using the scheme and for further information.