Policy paper

HMRC Loan Charge Review — Technical note

Published 9 February 2026

Introduction

At Budget 2025 the government published its response to the independent review of the loan charge, carried out by Ray McCann, and accepted the review’s main recommendation to establish a new settlement opportunity for those with outstanding loan charge liabilities.

This guidance provides further details on how it is intended that the settlement opportunity will be implemented, based on the government’s response to the review and legislation now published in the Finance Bill. It should be noted that the Finance Bill is going through Parliament, has not yet been given Royal Assent and therefore is subject to amendment. This guidance is therefore provisional, pending the Finance Bill clauses getting Royal Assent and the definitive settlement scheme being published by HM Treasury in regulations, and will be updated in due course.  

Guidance on HMRC’s operational activity to implement the settlement opportunity, including how and when it will contact eligible customers, can be found here.

Settlement opportunity — key features

The new settlement opportunity is open to anyone with outstanding loan charge liabilities, including employers

For customers that decide to settle, the key features of the new settlement opportunity are that:

• 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 they would have 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 customer used a loan scheme
• for every customer, the new amount will be further reduced by £5,000, reducing the amount that many people could pay to zero
• late payment interest will be written off in the calculation of the new amount, reducing the amount that many customers could pay by around 20%
• the settlement opportunity is limited to a maximum reduction for any one customer of £70,000 against the loan charge amount they would otherwise owe, including interest

In addition:

• any inheritance tax already due because of the use of loan schemes covered by the settlement will be written off
• penalties will not be charged as standard
• where a customer is unable to pay the new amount in full immediately, HMRC will agree a payment arrangement tailored to their ability to pay. Any customer 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 customer decides to pay via instalments
• promoters of tax avoidance schemes will not be able to access the new settlement opportunity

Legislation for the loan charge settlement scheme — Finance Bill 2025 to 2026

The legislation for the new loan charge settlement scheme can be found in Part 1 of the Finance Bill, at clauses 25 to 27. Minor amendments have been tabled in the progress of the Bill.

The legislation provides the basis for how the settlement scheme will be implemented. It also sets out that HM Treasury will introduce secondary legislation in the form of regulations, that will provide further detail on the settlement scheme and the framework for settlements to be agreed under the scheme. This guidance will be updated as secondary legislation is introduced.

Eligibility for the settlement scheme

The legislation in the Finance Bill confirms that the settlement opportunity will be open to anyone with outstanding loan charge liabilities, including employers. HMRC must make a settlement offer to persons who they believe are liable to pay ‘loan charge amounts’, unless HMRC reasonably suspect a person is a promoter or introducer of tax avoidance arrangements (as defined in the legislation).

The definition of ‘loan charge amount’ includes amounts which arise in connection with loans or quasi-loans subject to the loan charge legislation (Schedule 11 or 12 of Finance (No.2) Act 2017) that have not yet been paid. Further details on the definition of ‘loan charge amount’ and amounts which arise in connection with the loan charge amount will be included within secondary legislation. Where customers have paid their loan charge amounts in full, they will not be eligible for the settlement opportunity.  

Customers will not be eligible for the settlement opportunity if they have only received income through disguised remuneration (DR) arrangements that are not subject to the loan charge legislation. This is because these customers are not liable to pay ‘loan charge amounts’.

If customers have received income through several DR arrangements, some of which are subject to the loan charge legislation and some of which are not subject to the loan charge legislation, any settlement offer will be conditional upon customers agreeing a settlement including all of their outstanding DR liabilities. However, the discounts outlined in the review’s report and accepted by the government will only apply to the amounts included in the settlement that are defined as loan charge amounts.

Amounts which have been included in a contract settlement entered in to before 1 June 2021 are not loan charge amounts. The relevance of 1 June 2021 is that settlements entered in to before this date were under HMRC’s previous settlement terms and could not have included loan charge liabilities. Customers settling before this date settled to prevent the loan charge arising, where it otherwise would have applied to their outstanding DR loans at 5 April 2019.

This means that customers will not be eligible for the settlement opportunity where all of their DR liabilities were included in a contract settlement entered in to before 1 June 2021, regardless of whether those amounts have been paid in full.

Customers who agreed a contract settlement including loan charge liabilities after 1 June 2021 will be eligible for the new settlement opportunity if those amounts have not been paid in full.

The section below on crediting amounts paid provides further guidance on how the new settlement will reflect amounts already paid by customers.   

Calculation of the new settlement amount

The legislation in the Finance Bill broadly sets out the steps that will be followed in each case to calculate the new settlement amount for individual customers who are eligible for the settlement opportunity.

The new settlement amount will be calculated based on the tax rates customers would have paid in the years in which their loans were made, instead of being charged at the tax rates that apply to the loan charge and all other income in 2019.

Late payment interest will be written off in the calculation of the new settlement amount, any inheritance tax already due because of the use of loan schemes covered by the settlement will be written off and penalties will not be charged as standard.

The settlement opportunity is limited to a maximum reduction for any one individual of £70,000 against the amount they would otherwise need to pay for the loan charge, including interest. This will not affect more than 80% of individuals who are eligible for the settlement opportunity, as the discount they receive will be under this threshold. The legislation in the Finance Bill also outlines how the new settlement amount is calculated if the £70,000 cap applies and guidance on this is set out in the next section.

To calculate the settlement amount where the cap doesn’t apply, HMRC will:

i) work with customers to determine their total value of loans or quasi-loans which are subject to the loan charge legislation

ii) work with customers to determine other amounts paid to them under the arrangements which those loans or quasi-loans were made. For example, scheme income which was taxed at the time the income was received

iii) determine the amounts charged to customers (as deductions, fees, or otherwise) under those arrangements. This will typically be fees paid to promoters

iv) attribute the amounts determined in the above paragraphs to relevant tax years. Further detail on this attribution will be provided in secondary legislation

v) this will determine a customer’s gross scheme income in each tax year, as referenced in the government’s response, for the purpose of calculating the deduction for historic promoter fees

vi) calculate the additional income tax and national insurance contributions (NICs) which would have been payable by the customer in each tax year. For the avoidance of doubt, additional income tax and NICs will only be calculated on (i) and (iii) above and not amounts that have already been subject to tax (ii)

vii) reduce the additional tax and NICs that would be payable in each relevant tax year (vi), for the deduction for historic promoter fees. This is calculated in each year as 10% of a customer’s gross scheme income up to £50,000 and 5% on the next £100,000. This deduction cannot reduce the amount of additional tax and NICs in any tax year below nil

viii) add together the remaining amounts (from vii) for each tax year and deduct £5,000 from the total. This is the deduction in line with the government’s decision to write off a further £5,000 of each customer’s liability, in addition to the review recommendations. This deduction cannot reduce the remaining balance below nil

ix) where the £70,000 cap doesn’t apply, (viii) is the settlement amount under the new settlement opportunity. The amount actually payable may be less where the customer has already made payments relating to their original liability, as these will be credited against the final balance to pay (but will not create a repayment)

x) the new settlement amount will not include any late payment interest, inheritance tax that has already arisen or penalties as standard

These steps for calculating the settlement are for individual settlements only. Further details on employer settlements and how the discounts apply where the settlement covers more than one employee will be set out in secondary legislation.

Where customers have outstanding liabilities in relation to income received through DR arrangements that are not subject to the loan charge, these liabilities will not be eligible for the discounts outlined above but will still need to be included in the settlement agreement, in addition to the new settlement amount.

Application of the £70,000 cap on the reduction to the customer’s original loan charge liability

The settlement opportunity is limited to a maximum reduction for any one customer of £70,000 against the amount they would otherwise need to pay for the loan charge (including late payment interest that has accrued on the original loan charge liability).

Whether the £70,000 cap applies is determined by comparing the new settlement amount to the amount a customer would otherwise need to pay for the loan charge, excluding any amounts already paid. If the difference is more than £70,000 the new settlement amount is instead the original loan charge liability less £70,000.

Based on how the settlement amount will be calculated under the new opportunity, the aspects that determine whether the cap will apply are as follows:

• calculating additional income tax and NICs based on the tax rates applicable in each tax year loans were received, instead of aggregating the customers total loans and taxing them in the 2018 to 2019 tax year at the applicable tax rates
• writing off late payment interest in the calculation of the new settlement amount. The value of the discount is the late payment interest that has accrued on the original loan charge liability
• the deduction for historic promoter fees
• the £5,000 deduction outlined by the government, in addition to the review’s recommendations

Further details will be provided in secondary legislation on how the original loan charge liability, including late payment interest, will be calculated under the new settlement opportunity. However, it should be noted that amounts customers may have written off under the settlement opportunity like penalties or inheritance tax liabilities, will not count towards the total reduction to a customer’s original loan charge liability.

Payment arrangements and forward interest

Where a customer is unable to pay their new settlement amount in full immediately, any customer can decide to pay the new liability over five years, without having to discuss affordability with HMRC.

Where customers require longer to pay their liabilities, HMRC will consider longer payment arrangements.

Forward interest will apply as normal if a customer decides to pay via a payment arrangement. Further details will be provided in secondary legislation.

Crediting amounts paid against the new settlement amount

The legislation in the Finance Bill provides that amounts paid by a customer against their original loan charge liability will be credited against the new settlement amount, but that this cannot create a repayment to the customer where the amount paid is greater than the new settlement amount. Further details will be provided in secondary legislation.

Writing off liabilities where a settlement is agreed under the new opportunity

The legislation in the Finance Bill provides that where a settlement is agreed under the new opportunity, customers will be liable to pay the new settlement amount with all other loan charge amounts, including those amounts that arise in connection with the loan charge amounts, being written off. The legislation also provides for amounts that aren’t loan charge amounts but are connected with them, for example penalties that have already been charged, being written off where the settlement is agreed. Secondary legislation will set out further details about amounts that will be written off where the settlement is agreed.

The legislation will only provide for relevant liabilities to be written off where a customer enters into a settlement agreement with HMRC. As such, customers must agree a contract settlement with HMRC even if the new settlement amount, or amount payable after taking account of amounts already paid, is nil.

It should be noted that only inheritance tax liabilities that have already arisen or will arise within 3 months from the date the settlement offer being sent to the customer, that are unpaid, will be written off in the settlement. Any inheritance tax liabilities that arise in relation to the relevant DR arrangements after this period will not be written off. Once the legislation giving effect to the settlement opportunity has been enacted, customers may want to consider taking independent advice on whether they may be liable to inheritance tax liabilities and whether they need to take steps to wind up any trust arrangements as part of the settlement process, to ensure inheritance tax liabilities do not arise in the future.