Loan Charge settlement: What you need to know

This article was written by Jon Claypole. Jon is a Partner and head of BDO’s Tax Dispute Resolution team. He has over 30 years' experience of tax disputes gained from working both in HMRC and in the profession.

What is the Loan Charge?

The Loan Charge applies to people who received ‘non-taxable’ loans as a way to avoid income tax and National Insurance. HMRC calls these arrangements ‘disguised remuneration’ or ‘loan schemes’. The Loan Charge applies to loans received after 9 December 2010. It was introduced in 2017 to counter what HMRC considered to be tax avoidance, treating loans received from arrangements as taxable income in the 2018/19 tax year. According to the Government, approximately 50,000 people are affected.

This charge has always been a controversial piece of tax legislation. The new 2026 Loan Charge Settlement Scheme is in place from 5 August 2026 and provides for deductions and incentives which have not been available in previous settlement terms.

Are you affected and want to understand your options? You can book a free, confidential appointment with one of our Tax Dispute Resolution experts, who will be happy to discuss your situation.

Book a free online consultation

 

Loan Charge settlement: What are the key changes?

The new settlement terms include the following:

• Each affected taxpayer will receive an automatic deduction of £5,000 to their Loan Charge liability
• A further reduction of up to £10,000 per year 
• HMRC will no longer charge late payment interest on liabilities relating to the Loan Charge
• Inheritance tax already due because of the use of loan schemes covered by the settlement to be written off The tax calculation will be based on the years in which the income was earned rather than all taxed as income in 2018/19; potentially resulting in a significant reduction for taxpayers
• Extended payment plans of up to five years, or ten years in certain cases, will be made available. Where affordability remains an issue, HMRC may consider sub-standard offers
• HMRC will not seek penalties unless there is clear evidence of egregious behaviour
• Total reductions capped at £70,000 (excluding interest and IHT).

 

Key advantages of the new Loan Charge settlement terms

• The new terms may provide a more attainable path to closure for those who struggle with the retrospective nature of the original charge
• The combination of potentially lower tax rates, deductions, no interest and IHT relief means taxpayers are likely to have a lower liability and reduced risk of financial hardship

 

Potential drawbacks and lack of clarity

The reforms are designed to have positive effects, but several important complications and nuances remain.

Thousands of taxpayers affected by the Loan Charge have already settled. Despite HMRC’s Charter principle of equal treatment amongst taxpayers, these new reforms may create a disparity between early settlers and those who waited.

The Loan Charge has been a flagship anti-avoidance measure. These reforms raise the question whether HMRC would adopt similar approaches for other anti-avoidance arrangements, or whether this is a one-off.

 

HMRC’s historic approach

HMRC’s approach to collecting Loan Charge debts has been criticised by professional bodies and parliamentary committees. The House of Lords Economic Affairs Committee has previously described HMRC’s actions as “aggressive”, with many taxpayers being pushed to financial hardship and even bankruptcy.

Although the last reforms announced in 2021/22 eased initial tensions, concerns persisted which prompted a further review of the Loan Charge and additional changes announced in the November 2025 Budget, which have resulted in the 2026 terms

 

What should affected taxpayers do about the Loan Charge settlement?

For anyone still exposed to the Loan Charge or under enquiry in relation to similar arrangements, the 2026 Loan Charge Settlement Scheme offers the opportunity to re-evaluate your tax position. The new settlement terms could make a previously unaffordable liability more manageable.

If you have ever used a loan scheme, or are currently undergoing discussions with HMRC, the new settlement terms may affect you.

Our Tax Dispute Resolution team has significant experience in helping clients resolve tax issues relating to the Loan Charge and disguised remuneration as well as with HMRC’s approach to settling tax avoidance arrangements.

If you would like to discuss the 2026 Loan Charge Settlement Scheme, please email Richard Philson, or book an online appointment for a no-obligation conversation to see if we can assist. 

Book a free online consultation