Budget: Independent Loan Charge review – is now the time to settle?

The Loan Charge was enacted in 2017 with an operational date of 5 April 2019. The Loan Charge was intended to tackle historical use of contrived tax avoidance schemes that seek to avoid income tax and National Insurance by disguising remuneration as a form of non-taxable payment (typically a loan). This legislation has been subject to significant debate and controversy due to its retrospective nature and adverse impact on taxpayers.

At Autumn Budget 2024, the Government committed to an independent review of the Loan Charge in view of concerns raised and to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers. The review was tasked with examining the barriers preventing those subject to the loan charge from reaching resolution with HMRC and recommending ways to support them to settle.

The review has now concluded. Its report has been published alongside the Government’s response. In line with the review’s main recommendation, the Government will establish a new settlement opportunity for those with outstanding loan charge liabilities with legislation being introduced in Finance Bill 2025-26.

The new settlement opportunity is open to anyone with outstanding loan charge liabilities, including employers. The key features of the new settlement opportunity (subject to qualifying for it) are expected to be as follows:

• Instead of being charged at the tax rates that apply to the loan charge and all other income in 2019, the new offer will be worked out based on the tax rates that would have been paid in the years that loans were made;
• The new amount will be reduced to account for historic promoter fees, up to a maximum discount of £10,000 per year that a taxpayer used a loan scheme;
• Further to the recommendations in the review, the new amount will be reduced by £5,000;
• No late payment interest will be charged and potentially no penalties;
• Any Inheritance Tax already due because of the use of loan schemes covered by the settlement will be written off;
• Where a person is unable to pay the new amount in full immediately, HMRC will agree a payment arrangement tailored to the ability to pay - anyone can decide to pay the new liability over five years, without having to discuss affordability with HMRC - forward interest will apply as normal if a person decides to pay via instalments. Arrangements over five years will require engagement with HMRC;
• The maximum reduction for any one person will be no greater than £70,000 on what the person already owed because of the loan charge; and
• Promoters of tax avoidance schemes will not be able to access the new settlement opportunity.

This new settlement opportunity will be a welcome relief to those who have put off engaging with HMRC where they had no prospect of being able to afford the loan charge previously. It should give all taxpayers who settle certainty and finality on an issue which has been spanning many years.

The settlement opportunity will now need to be legislated and HMRC are expected to contact taxpayers from Spring 2026 to explain the new settlement opportunity. Individuals and employers liable to the loan charge who have not resolved their position with HMRC and paid their outstanding tax liabilities should seek advice on the application of this new settlement opportunity.

Please contact the authors, or your usual KPMG contact in the UK, to talk through how HMRC’s new settlement opportunity might affect you or your business. Our multidisciplinary team of personal, employment and company tax experts can support you with all aspects of tax governance, compliance and remediation.

For further information please contact:

• Karmjit Mader
• Rob Shannon