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Loss relief limited to equivalent of cash contribution
HMRC have set out their terms for taxpayers who volunteered for the settlement opportunity aimed at users of avoidance schemes.
Loss relief against other income will be allowed in an amount equivalent to the cash contribution made by the individual, less any element expended on unallowable fees in relation to tax advice, payments to independent financial advisers, and circular funding arrangements.
The Revenue has also insisted:
- The balance of the loss claim will not be allowable.
- Loan interest will only be allowable to the extent that it represents the allowable expenditure paid out of the initial cash contribution.
- Any share of income attributable to the cash element of expenditure will be taxable in full.
- Any share of income attributable to the loan financed element will only be taxable in so far as it represents investment income over and above the return of the initial capital.
In a letter to all particpants of the settlement initiative, which launched earlier this month, HMRC provide the example of Partner A, who invests £1m into a partnership; £200,000 cash from his own resources and £800,000 by way of loan finance as part of the scheme.
His objective is to claim loss relief of £1m, but relief under the opportunity is limited to £200,000 less disallowance for fees.
The Revenue says it will treat each taxpayer individually within the specific terms of the settlement, regardless of what the avoidance scheme promoter, other partners or participants in the decide to do.
