Readers’ forum: Long retired

Writing for Taxation magazine, BKL tax adviser Terry Jordan answers a reader’s query on the treatment of an outstanding loan from a Guernsey trust.

‘We have been asked to advise in the case of a Guernsey retirement plan, which is a trust with a UK resident beneficiary.

The plan was set up in 1982 as a ‘normal’ UK pension scheme by the limited company owned by the beneficiary. That company was taken over in 1997. In 1992, the plan adopted model rules for small self-administered pension schemes and in 1997 Guernsey trustees were appointed.

In 2003, tax was paid under TA 1988, s 591. For some reason it was paid on a negotiated basis that was somewhat less than the sum actually charged under the assessment.

In 2008, the principal and only beneficiary (long retired) took out a sizeable loan from the trust. It carries interest that has been accruing and has not been paid.

Further, there was also a smaller loan to the principal beneficiary’s son on which interest has been paid. This smaller loan is about to be repaid. However, the loan to the principal beneficiary cannot be repaid until he and his wife die, when the disposal of the marital home will release funds. The wife is not a beneficiary.

I have the following questions.

  • First, do the disguised remuneration provisions relate to the loan to the principal beneficiary, and if so how?
  • Second, is the outstanding loan a valid deduction in the principal beneficiary’s inheritance tax affairs and those of his wife when they die?
  • Third, is there any form of ongoing tax liability arising from the interest charged by the plan that remains unpaid?
  • Finally, if he nominates his children who are all UK tax resident, are there any tax consequences of giving them money when he dies?

I look forward with interest to replies from Taxation readers.’

Query 19,312– Offshore.

Reply by Terry: the normal rules applicable to offshore trusts may be relevant

‘It is not entirely clear what a ‘Guernsey retirement plan’ is and, therefore, the correct UK tax treatment of it is in doubt. A Google search is inconclusive except in the case of pension plans for Guernsey residents.

If this arrangement is simply an offshore trust with no special protections, the normal rules would apply. Income arising could be matched with the benefit of the loan and capital gains might be assessable on the client under TCGA 1992, s 86 (‘Attribution of gains to settlors with interest in non-resident or dual resident settlements’) on the premise that they are UK resident and domiciled.

The loan benefit charge coming into effect if loans are outstanding on 5 April 2019, in respect of loans that were received in lieu of salary, is currently receiving much publicity. One example is in The Sunday Times, 17 February, with reference to airline pilots.

A liability would normally be taken into account when calculating the inheritance tax on a person’s estate as long as it is discharged after death (IHTA 1984, s 175A) and if it was not incurred to invest in excluded property, non-residents’ foreign currency accounts or assets that benefit from business or agricultural property reliefs.

It is also necessary to consider the provisions of FA 1986, s 103 (‘Treatment of certain debts and incumbrances’) which can preclude a deduction if the consideration consisted of property derived from the deceased.

As a generalisation, UK pensions can pass on death without any tax charge if the pensioner dies before the age of 75 and without an immediate charge if death occurs after that age. In the latter case, an income tax charge arises when benefits are taken. That treatment is unlikely to be afforded in the present case.

Any untaxed income is likely to be brought into charge and stockpiled gains, if any, would be matched with the capital payments received by the children.’

The article is also available on the Taxation website.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


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