Loan charge – new settlement opportunity

We have a page of separate information explaining the existing loan charge position for people who are outside of the scope of the new settlement opportunity or who choose not to enter it. 

We also have a separate page explaining where to get more help with the loan charge, including help available from our own article archive and the tax charity, TaxAid.

Overview of the new settlement opportunity

HMRC have introduced a new loan charge settlement opportunity, which they say could significantly reduce the amount taxpayers have to pay. HMRC estimates that around one third of people able to settle without making any payment.  

Not everyone is eligible for the opportunity – see Will I be included in the new settlement opportunity, below. 

HMRC have started contacting relevant taxpayers with settlement offers based on the new terms and their specific circumstances. 

HMRC have created a video explaining the new opportunity and how it could help anyone with an unresolved loan charge liability. To encourage people to engage and settle, HMRC are highlighting the following points:

• Most people could see reductions of at least 50% in what they have to pay. Support, such as payment arrangements, is available for those who need time to pay anything they owe after the reductions have been applied (more on this below)
• Around a third of people could be able to settle without having to pay anything at all. However, these taxpayers will still need to complete the settlement scheme paperwork so HMRC can formally close their case.
• Overall, the settlement can reduce what a taxpayer owes by up to £70,000. Where the £70,000 cap applies, HMRC will use a simplified calculation to determine the settlement amount, which should leave most affected taxpayers better off.

Background to new settlement opportunity

On 23 January 2025 the Government announced ‘a new independent review into the Loan Charge’ to be led by Ray McCann, following ongoing concerns about the impact and fairness of the loan charge for those affected:

• Written ministerial statement
• Letter from the Minister to Ray McCann, the reviewer
• Terms of Reference for the review

LITRG and the CIOT provided input into the review. 

Ray McCann’s review was published at Budget 2025. The Independent Loan Charge Review 2025 and the Government Response can be found here: Independent Review of the Loan Charge - GOV.UK

HMRC’s tax information and impact note about the recommendations from the review, including a summary of impacts, can also be found on GOV.UK.

Main features of new opportunity

The government accepted all but one of the McCann review’s recommendations. One of the accepted recommendations was for HMRC to provide certain groups with a new loan charge contract settlement opportunity, with the following features:

• instead of being charged on ‘net of fees’ scheme income and at the tax rates that apply to the loan charge and all other income in 2018/19 tax year, the new liability will be based on gross scheme income and the tax rates that would have applied in the years that loans were made
• the tax due for each tax year will then be reduced to account for historic promoter fees. This is calculated in each year as 10% of gross scheme income up to £50,000 and 5% on the next £100,000 (up to a maximum discount of £10,000 per year)
• the new amount of tax due will be further reduced by £5,000
• late payment interest will be written off in the calculation of the new amount

The settlement opportunity is limited to a maximum reduction of £70,000. This reduction is measured against a simplified calculation of the original loan charge amount otherwise owed, including interest. For example, suppose someone owes £200,000 according to the simplified calculation, but the amount calculated under the new settlement terms is £100,000. The reduction would therefore be £100,000. However the £70,000 cap applies and the person would need to pay £130,000. HMRC say most taxpayers will not be affected by the cap.

In addition, as part of the new settlement opportunity:

• any inheritance tax liabilities already due, arising from the use of loan schemes covered by the settlement and including those arising within 3 months of accepting an offer, should be written off. (Also see heading Loan Recall below.)
• penalties will not be charged as standard
• where someone is unable to pay the new amount in full immediately, HMRC will automatically agree a payment arrangement over five years or a longer arrangement tailored to their ability to pay if this is required. Forward interest will apply as normal, although there have been some changes to the way it is calculated from 8 May 2026 which should benefit taxpayers (see heading Forward interest below).

This article written for ContractorUK, based on a case study we put together, offers initial thoughts on how the new settlement opportunity could work in practice and how it could reduce the liability for some workers affected by the loan charge – in some cases significantly.

Legislation

The legislation for the new loan charge settlement scheme can be found the 2026 Finance Act. LITRG provided a briefing to MPs on the clauses. In that briefing we raised concerns that key groups were excluded from the new loan charge settlement scheme: those who have already settled their liabilities, and individuals with loans outside the 2010–2019 loan-charge years, including many lower-paid agency workers. We argued this risks unfairness and could encourage future non-compliance and recommended widening the definition of “loan charge amount” and scope to include similar cases outside the current timeframe.

Much of the detail about how the new settlement opportunity will work and the framework for settlements to be agreed, is contained in secondary legislation in the form of the Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026. These came into effect in August 2026. We explain more about the regulations in our announcement from 17 July 2026. 

HMRC are now issuing settlement offers based on the new terms. HMRC have produced detailed guidance on the new terms and how the settlement offer calculations will work. See Resources to help you understand any settlement offer below, for more information. 

Will I be included in the new settlement opportunity?

HMRC’s initial guidance setting out what the review means for those affected can be found on GOV.UK: HMRC issue briefing: operational activity during the new independent review of the Loan Charge

Taxpayers should have been written to in groups, to confirm their named caseworker going forward and explain how the new settlement opportunity may or may not apply to their group. The groups are: 

• Taxpayers with arrangements in scope or partly in scope of the review – the latter includes people who were in schemes that straddled the 9 December 2010 and 5 April 2019 dates and so were partly within the loan charge time frame. This also includes people in schemes during the key period but where the scheme moved in and out of the loan charge depending on the underlying arrangements. We understand that these taxpayers will have to settle all their non-loan charge and loan charge affairs at the same time to benefit from the new settlement terms on the loan charge elements. 
• Taxpayers with arrangements out of scope of the new settlement opportunity – for example as they only have pre-2010 or post-2019 avoidance issues which are not subject to the loan charge. 
• Taxpayers in scope with a previously settled loan charge position that has not been fully paid – these people may be able to have their remaining balance reduced. 

We understand that those who have fully settled AND paid their loan charge liabilities will not be written to by HMRC.

Following this initial contact, HMRC will write out to individuals again with further detail. In those communications, HMRC should explain how the new settlement opportunity applies to each taxpayer’s particular circumstances and, where possible, set out a settlement offer reflecting the revised rules. We understand that formal contract settlements will be required to conclude matters, even where the offer is nil. 

In some cases, HMRC will need additional information from the taxpayer before it is able to calculate and issue a settlement proposal.

Resources to help you understand any settlement offer

GOV.UK has a page providing an overview of the new settlement scheme. 

Detailed HMRC guidance is also available on how HMRC is implementing the loan charge settlement scheme.

This guidance includes information on:

• when settlement offers will be made and how long they will be available
• what determines how long taxpayers will have to settle
• calculating the settlement offers for individuals and employers (including examples)
• crediting amounts already paid

HMRC have also created a video explaining the scheme and how it could help anyone with an unresolved loan charge liability. This can be viewed on their YouTube channel. 

Our own article written for ContractorUK, explains the three key things to bear in mind once you have received your offer:

• the formal steps you need to take – even if your offer is £0
• why HMRC are using simplified calculations, including for the £70,000 cap calculations, and what this might mean for you
• how to check – and challenge if necessary – the figures used for the untaxed income, even if you don’t have bank statement evidence.

According to GOV.UK guidance, anyone who does not settle under the new terms will have to pay the full, existing loan charge amount. See our separate page for an overview of that position. 

Payment arrangements and forward interest

Individuals who have a balance to pay after the new terms have been applied, but who cannot pay in full straight away will be able to agree a payment arrangement based on what they can afford. HMRC say that anyone who settles under the new terms can choose to pay over five years, with longer arrangements available depending on their circumstances.

If you need a payment arrangement, forward interest will be charged. Until very recently, HMRC generally calculated forward interest by taking the standard interest rate at the time of settlement, adding 1%, and applying that figure to the full balance — including tax, penalties and accrued late-payment interest — for half of the payment period. (This ‘half-period’ method is designed to roughly reflect interest on a reducing balance over time).

For instalment arrangements agreed on or after Friday 8 May 2026, irrespective of which tax years are involved, the additional consideration added will be reduced from 1% to £1. HMRC are also removing the element of compounding that previously occurred where forward interest was charged on accrued statutory interest. HMRC have updated their technical manual to reflect the changes. We understand that it may be updated further to include an example on early repayment to illustrate the fact that from 8 May 2026 not all of the liability is interest-bearing. 

Our ContractorUK article explains HMRC’s revised approach to forward interest on instalment settlements and how it could reduce costs for some taxpayers, including workers with loan charge-related issues.

Consumer protection and loan recall

Some people whose arrangements included loans made from trusts may face ongoing IHT charges up to and including the point at which the loan is written off or the trust ends. The new settlement terms, as set out on GOV.UK suggest that any IHT liabilities already due or arising within three months of accepting an offer should be waived. Taxpayers affected by these arrangements may seek to take action during this window to resolve this final issue. 

This has led to renewed activity by some organisations claiming to now own the loans. Some may seek a fee or percentage of the loan value to write off or ‘release’ a loan, while others may assert that the full loan value remains repayable. If you receive correspondence from an organisation, or its solicitors, purporting to now own your loan, or a statutory demand for payment, it is important you do not ignore it. Strict time limits apply. 

There are a number of resources available to help explain the situation and to help you protect your position, including from HMRC. See our page on More loan charge help for more information. 

You should also remain alert to other emerging risks. For example, we understand that some tax refund-type agents may be seeking to profit from the loan charge by offering to negotiate discounts under new settlement terms in return for substantial upfront fees. Taxpayers should be aware that settlements can be agreed directly with HMRC, free of charge, or with the help of a professional tax adviser. This includes from TaxAid if you are on a low income and cannot afford to pay for professional advice. See our More loan charge help page.