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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Contract settlements: expected offer: means - legal charges

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

If the taxpayer either owns, or jointly owns their residence with their spouse, civil partner or domestic partner we could consider a legal charge as an alternative to an enforced sale if they are in agreement and are not able to secure a loan against the property.

A legal charge gives HMRC an entitlement to payment of a specified amount when the residence is disposed of. It will not however produce any money before then and the procedure involves considerable cost in time, resources and legal expenses for HMRC.

A legal charge should be regarded as a last resort and considered only when

  • the taxpayer is at or near retirement age
  • the spouse or partner, living with the taxpayer, is of a similar age, and
  • they are unable to raise a loan to meet the proposed settlement.

If you and your manager have concluded, having considered EM6237 to EM6239 and EM6249+, that as a last resort there is no alternative, the decision should be left to the specialists in Debt Management and Banking (DMB).

EM1020 tells you how to contact DMB, please note that legal charges are not dealt with by the contract settlement unit.

You should discuss the precise circumstances with DMB before concluding that this is the only option. You should then

  • settle the case by the formal route, not by contract
  • give DMB a report of all the information you have about the taxpayer’s income, expenditure, assets and liabilities and include a completed SEES form MS134
  • explain the situation to the taxpayer and agent accordingly.