The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026

The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 establish a new framework for individuals and employers to resolve their outstanding liabilities arising from the controversial loan charge. Following the Independent Loan Charge Review by Ray McCann and the government’s subsequent response at Budget 2025, these Regulations provide a structured mechanism for making settlement offers and reaching agreements with His Majesty's Revenue and Customs (HMRC). The scheme aims to significantly reduce liabilities for many, incorporating concessions such as the write-off of certain inheritance tax amounts, late payment interest, and an automatic £5,000 reduction. This development is crucial for legal professionals advising clients affected by disguised remuneration schemes, offering a pathway to finality amidst a complex and contentious area of tax law.

The promulgation of The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 marks a pivotal moment for thousands of individuals and employers grappling with the UK's contentious loan charge. These Regulations, flowing directly from the government’s response to the Independent Loan Charge Review conducted by Ray McCann and published at Budget 2025, introduce a formal settlement scheme designed to bring closure to a long-standing and often distressing tax dispute. For legal practitioners, understanding the nuances of this new scheme is paramount, as it offers a revised and potentially more favourable pathway for clients to resolve their liabilities for income tax, National Insurance Contributions (NICs), and associated inheritance tax.

The loan charge, initially introduced to tackle disguised remuneration schemes, has been a source of significant controversy, drawing criticism for its retrospective nature and the severe financial impact on those affected. The 2026 Regulations represent a legislative attempt to address these concerns by providing a structured, concessionary settlement opportunity. This article will delve into the background of the loan charge, examine the key provisions of the new settlement scheme, highlight its practical implications for legal professionals and their clients, and identify areas requiring careful consideration.

The genesis of the loan charge lies in the proliferation of 'disguised remuneration' (DR) schemes, which emerged as a form of tax avoidance where payments arising from employment were structured as 'loans' rather than taxable income. These arrangements, often routed through offshore trusts, aimed to circumvent Income Tax and National Insurance Contributions, with no genuine expectation that the 'loans' would be repaid. HMRC consistently maintained that these schemes were ineffective and that tax was always due.

To counter these schemes, the government introduced the loan charge in the Finance (No. 2) Act 2017, specifically through Schedules 11 and 12. This legislation mandated that all outstanding disguised remuneration loans made on or after 9 December 2010, and still outstanding on 5 April 2019, would be treated as taxable income in the 2018/19 tax year. This measure proved highly controversial due to its retrospective application and the substantial tax liabilities it imposed, often 'stacking' many years of income into a single tax year.

The widespread concerns led to an initial independent review by Lord Morse in 2019. However, persistent issues prompted the commissioning of a new independent review in January 2025, led by Ray McCann, a former President of the Chartered Institute of Taxation. The McCann Review's final report, published alongside the government's response at Budget 2025, acknowledged the harshness of the loan charge and recommended a new, more generous settlement opportunity. The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 are the legislative embodiment of these recommendations, designed to provide a final chance for resolution for approximately 32,000 individuals still affected.

The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026, underpinned by provisions in the Finance Act 2026 (specifically Sections 25, 26, and 27), empower HMRC to establish and administer a new settlement opportunity for those liable to the loan charge. The scheme is open to individuals and employers with outstanding loan charge liabilities, but explicitly excludes promoters of tax avoidance schemes. A core feature is the ability for taxpayers to enter into a 'settlement agreement' with HMRC regarding their loan charge amounts and other connected liabilities.

Crucially, the Regulations implement several significant concessions recommended by the McCann Review. The calculation of the new settlement amount will be based on the tax rates that would have applied in the years the loans were originally made, rather than the higher rates potentially applicable if all income were taxed in the 2018/19 tax year. Furthermore, taxpayers will benefit from a reduction for historic promoter fees, capped at £10,000 per year of scheme use, and an automatic £5,000 reduction to their overall loan charge liability. Late payment interest on the 2018/19 loan charge liability will be written off, and penalties will not be charged as standard, except in cases of egregious behaviour.

A particularly noteworthy aspect of these Regulations is the explicit provision for inheritance tax (IHT). The scheme provides that any IHT already due because of the use of loan schemes covered by the settlement will be written off. This addresses a significant concern, as employment-related disguised remuneration schemes often involved offshore trusts, potentially exposing beneficiaries to substantial IHT liabilities, sometimes equal to the total loans taken. The write-off applies to IHT liabilities that have already arisen or will arise within three months of the settlement offer being sent.

For those unable to pay immediately, HMRC will automatically agree a payment arrangement over five years, with longer periods available based on individual affordability. However, the total reduction in liability under the scheme is capped at £70,000 against the original loan charge gross liability, excluding IHT. While these concessions are substantial, some areas remain challenging. The scheme requires a full and final settlement of all disguised remuneration-related tax issues, not just those directly subject to the loan charge. Concerns also persist regarding those who settled under previous terms or those with loans outside the 2010-2019 period, who may not benefit from these new reliefs, potentially creating disparities. Practitioners should also be aware of potential renewed loan recall activity, which may be linked to the new settlement opportunity. Detailed HMRC guidance is still anticipated to clarify the practical application of many of these provisions.

The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 represent a significant legislative effort to resolve the long-standing complexities and controversies surrounding the loan charge. By implementing the key recommendations of the McCann Review, the government aims to provide a more equitable and accessible pathway to settlement for thousands of affected individuals and employers. The concessions, including the recalculation of tax liabilities, reductions for promoter fees, the £5,000 automatic discount, the write-off of late payment interest, and crucially, the write-off of certain inheritance tax liabilities, offer a tangible opportunity for many to achieve financial closure.

For practising attorneys and legal professionals, it is imperative to thoroughly understand these new Regulations and the accompanying guidance as it emerges. Advising clients will require a meticulous review of their specific circumstances, including the original loan years, the quantum of loans, and any prior settlement attempts, to ascertain eligibility and the optimal approach to settlement. Practitioners should proactively engage with HMRC, seek clarity on any ambiguities, particularly concerning 'connected amounts' and the application of the £70,000 cap, and ensure that clients are fully informed of their options and the implications of entering into a settlement agreement. The success of this scheme hinges on clear communication and diligent application, making expert legal advice more critical than ever.