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Spotlight 40: Income Trust Avoidance Schemes

HMRC has published Spotlight 40, its most recent addition to their Spotlight series, which highlights schemes that the Revenue will target as tax avoidance.

How was the scheme intended to operate?

  • The scheme – known as the Knight Wolffe income trust – seeks to divert income from a business into a trust.
  • The business would then establish a trust for the benefit of its suppliers and pay the money into the trust whilst claiming this payment as a tax deductible expense of the business.
  • Thereafter, the trust funds would be loaned, usually to the business owners, their families, or both, on terms which meant that the trust funds would be unlikely to be repaid.
  • The scheme claims that no Income Tax or National Insurance Contributions (NICs) arise on the loans and, eventually, the loans would be claimed to reduce the scheme user’s estate value for inheritance tax purposes.

What is HMRC’s View?

HMRC believe that the scheme does not work as intended and loans made under this income trust structure will be caught by the proposed 2019 disguised remuneration loan charge.

Pett, Franklin & Co. LLP are experienced at negotiating settlements with HMRC. If you or your client would like to find out more about how we can help you, please contact Stephen Woodhouse on 0121 348 7878 or email stephen.woodhouse@pettfranklin.com.

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