Employee Benefit Trusts – formerly a Blessing, now a Curse!

We have heard that many clients with EBT’s are sitting tight and taking no action, but is this really sensible?

Stop procrastinating – it is widely rumoured that HMRC are intending to go after existing EBT’s and seek settlement for tax not paid (so it is likely that they will assess the tax missed as what should have been paid as a bonus distribution on the whole £400,000 – plus of course the NIC).

So for an EBT with loans of £400,000, HMRC may be seeking a settlement of up to £271,200 (for missed PAYE and NIC).

Doing nothing is not really an option as not only is a potential settlement hanging over you but also there are the annual trustee fees and Benefit in Kind charges. These could amount to £104,000 over the next 10 years.

An existing EBT of £400,000 will often pay annual trustee fees of circa £4000 plus annual BIK charges on notional interest of £16,000. Therefore this will provide for an annual payments or actual costs of £10,400 pa.

Total “real” costs over 10 years would amount to = £104,000*

Total “real” costs over 15 years would amount to = £156,000*

(assuming no increase in HMRC interest rates).

So for clients the choices are either to :-

(a)   Do nothing and pay up £104,000 over the next 10 years PLUS HMRC may request a settlement and potentially have to settle a further amount of up to £271,200 to HMRC. That makes a total possible indicative payment of £375,200.

(b)   Or take action to exit the EBT completely.

EXTRACTION STRATEGIES

There are a number of extraction strategies available with counsel opinion. The most credible of which will cost circa £50,000. There is no guarantee that they will work!

So clients can pay this and hope that it works, but HMRC may challenge it and the tax may have to be paid as well as the fees!

We wonder whether this is a sensible course of action?

We provide bespoke strategies for EBT clients (either with loans or with cash or other assets) and we believe that we can extricate most clients from EBT’s.

We prefer to negotiate directly with The EBT trustees in resolving issues with EBT’s and we can extract clients from their EBT’s and for best results we also provide additional advice on their business and OR personal tax planning issues.

There is a clear benefit for EBT clients to be pro-active to resolve EBT issues now to resolve matters as their EBT’s will only cost more as time proceeds

Ray Best can help you protect your financial future. To find out more, simply click here!

 

 

 

 

About Ray L Best

Ray Best has had over 30 years experience of advising on complex financial matters. A published author of a number of books including “Partnership and Shareholder Protection”, Inheritance Tax Simplified”. We provide an initial meeting at no cost and only engage with clients when we can add significant value.

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