Loans with inflation-only interest - still liable for income tax?

jaydeeuk1

Ok.. bear with me on this, I'm not known as mr loophole for nothing.

Set the loan as interest free, ask them to 'put aside' (ie, don't spend) the interest you wish to charge.

There is no tax on gambling winnings.

Both register with betfair (or smarkets as its cheaper), find an event where there is no liquidity for a few weeks. If you are expecting £1000 in interest, ask the person to find an event that is extremely unlikely to happen but settles not too far in the distant future and offer up odds of 1.01 and with no current liquidity. You then lay this 1.01 for £1000. Most likely the event will 'lose', you'll win £1000 minus betfairs 5% commission of £50, you're all settled and have your interest without any tax implications. Should it win, you'll be down £10 and your mate up £9.50, so just do it again until the result comes in that you want.

purdyoaten

So - in the formal loan agreement, and I am sure that the op is wise enough to have one, there will be no interest payable but the borrower will be obliged to open a betfair account and match with the op (I think that is how it works) and ensure that he loses £1000. The op will effectively 'suffer' 5% 'tax' on this £1000 and hope that HMRC won't see this form of agreement as one simply created as a way to avoid tax.

Should work!

BillJones

jaydeeuk1 wrote: »

Ok.. bear with me on this, I'm not known as mr loophole for nothing..

So another illegal tax avoidance scheme, seeking to "dress up" the interest to pretend that it's something else...

Why not just suggest that the OP lie and not declare the interest? It's no less illegal, and far less effort.

jaydeeuk1

BillJones wrote: »

So another illegal tax avoidance scheme, seeking to "dress up" the interest to pretend that it's something else...

Why not just suggest that the OP lie and not declare the interest? It's no less illegal, and far less effort.

Because that would be illegal and have potential repercussions, whereas mine is perfectly legal. However if you charged £45k in undeclared interest you might only need to pay back £5k and give a quick 30 second apology.

I'd rather have the cash in my pocket than some politicians.

jaydeeuk1

purdyoaten wrote: »

So - in the formal loan agreement, and I am sure that the op is wise enough to have one, there will be no interest payable but the borrower will be obliged to open a betfair account and match with the op (I think that is how it works) and ensure that he loses £1000. The op will effectively 'suffer' 5% 'tax' on this £1000 and hope that HMRC won't see this form of agreement as one simply created as a way to avoid tax.

Should work!

HMRC will never find out, unless you told them. It would just be a 'bet'. Whether betfair will flag up the bet on their system is another matter.
The alternative choice, which is a bit more costly, is for someone to back '0-0' in a game, and the other person lay 'over 0.5 goals' on a high liquid market. More chance of the 'wrong' person winning, although go for real madrid or barca vs some crap team in a cup competition, and odds will be around 1.02. Your cash is matched against hundreds of other people and will be treated just as a bet. This is the 'safer' method and won't run any risk of betfairs anti money laundering schemes. Plus you'll get a free bet, and referal which will be more than betfairs commission anyway.

If you need any more 'schemes' just let me know, you should see my petrol one

BillJones

jaydeeuk1 wrote: »

Because that would be illegal and have potential repercussions, whereas mine is perfectly legal.

No, it's not. The expected value of the deal at the time of inception is intended to replace interest. If this sort of thing was legal, don't you think that companies would pay salaries through such "gambles" and avoid all income tax?

It's actually quite offensive that people such as you, who pay so little in in the first place, seek to pay even less, leaving the honest amongst us to subsidise you.

Of course, shame for this seems rare nowadays.

jaydeeuk1

BillJones wrote: »

No, it's not. The expected value of the deal at the time of inception is intended to replace interest. If this sort of thing was legal, don't you think that companies would pay salaries through such "gambles" and avoid all income tax?

It's actually quite offensive that people such as you, who pay so little in in the first place, seek to pay even less, leaving the honest amongst us to subsidise you.

Of course, shame for this seems rare nowadays.

If there is no mention of interest in this loan agreement, then I can't see a problem.

I pay all the tax I legally have to.

PeacefulWaters

My post got deleted?

That is extraordinary!

BillJones wrote: »

It's disappointing when people on here suggest such sophistry as you are doing, to illegally avoid tax. What would you say if my bosses said that my bonus was a gift, to knock a few hundred thousand off my tax bill, would that be OK too?

Give over. The suggestion is no different to gifting £3,000 a year to reduce an IHT liability.

It's completely different to a payroll scam.

pvt

CGT does take inflation into account, so it does seem incongruous that income tax doesn't.

So one "method" of avoidance might be to buy an asset off the borrower for £10k. And in 10 years time they buy it back off you for, say, £11k. You have made no income there, just a capital gain of £1k, which is below the CGT threshold anyway. But even if it wasn't, the indexing would cancel out that nominal capital gain.

BillJones

jaydeeuk1 wrote: »

If there is no mention of interest in this loan agreement, then I can't see a problem.

No, sadly you are probably telling the truth there.

Now all I need to do is to have my company remove the word "salary" from my contract, and replace it with a monthly tombola instead, and I'm good to stop paying any income tax at all, as I'm only taking home "winnings"...