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Benefits Of Income Tax Loans For High-Net-Worth Individuals

13th Dec 22 - 5 MIN READ
Income Tax Loans For High-Net-Worth Individuals

While the festive season is now right around the corner, it also means another deadline is looming. In just over seven weeks – by January 31st 2023 – individuals are usually required to settle their UK income tax bills to His Majesty's Revenue and Customs (HMRC) for the second payment (July – December 2022) period.

Income tax liabilities can add up significantly, and paying this lump sum can effectively eat into your clients' available capital reserves. Your clients can use income tax loans to raise the capital required to settle their associated bill with HMRC. This can help to optimise their personal cash flow, maintain capital reserves or avoid late-payment penalties and interest charged by HMRC if they can't make their income tax payment on time. 

What Are Income Tax Loans?

Income tax loans are a relatively niche and sometimes little-known financing tool. However, this type of finance is one of the most helpful lending products for high-net-worth individuals. 

Income tax financing products allow individuals to take out a loan to cover their income tax liability. Lenders will usually pay HMRC directly, and your client will pay the lender back in fixed monthly amounts over the loan term – usually between 3-12 months. The more significant your clients' income tax liability, the more useful these loans can be. 

How long your client borrows for will depend on their financial position and reason for taking out the loan. Lenders are open to various scenarios, provided your client has a solid settlement plan and income to support monthly repayments comfortably. It might make sense for your client to opt for a shorter loan term if they have a short-term and non-critical gap in income that has meant they haven't been able to accrue the required amount to pay off their income tax bill. Alternatively, they can choose longer loan terms (six months or more tends to be the norm) if they want to spread the cost of their income tax over several months to retain liquidity and optimise personal cash flow, rather than making a lump-sum payment to HMRC. Most high-net-worth individuals elect to take this route.

Overview: Key Benefits of Income Tax Loans For High-Net-Worth Individuals

  • Cover a UK income tax liability, with your client paying it off in monthly tranches 
  • Facilitates cash-flow management and removes the burden of paying a tax bill as a lump sum. This, in turn, can also support your client's ability to retain liquidity for other investments, projects or manage their day-to-day living expenses more effectively
  • Large loans of £100,000 or more are possible
  • Income tax loans are niche but quick to arrange: we can negotiate these in just a couple of days
  • Simple process: a lender will settle your clients' liability with HMRC directly, and your client will pay the lender back on a monthly basis. Costs are fixed with the lender, so you and your client know what they need to pay back each month 
  • Available for any if your client is in a good financial position overall but lacks the immediate liquidity to pay their income tax bill by the January 31st deadline, therefore avoiding penalties and interest from HMRC
  • Competitive rates available
  • If your client has already paid their income tax bill, reimbursement is available

When To Consider Income Tax Loans

Income tax loans can be used for almost any reason, provided your client can show rationale for borrowing and demonstrate that they are doing so responsibly. These loans are especially advantageous if, over the last fiscal year, you have clients that:

  • Have generated significant income
  • Have sold investments at a substantial profit
  • Have disposed of assets and generated significant capital from them
  • Have generated considerate taxable income from various projects or ventures
  • Don't want to (or can't) currently pay their income tax liability as a lump sum, but they are in a good financial position overall

Options For Clients That Have Already Paid Their UK Income Tax Liability

If your client has already paid their income tax liability, we can arrange these loans on a reimbursement basis up to 28 days after they have settled the outstanding income tax liability with HMRC. 

In these cases, a lender will effectively reimburse your client the amount they paid in income tax. Your client will then repay the lender over the loan term in monthly repayments. We typically work with clients to deliver this solution if you want to retain a pool of capital or if it supports your ability to manage your cash flow more effectively. 

Who Can Benefit From Income Tax Loans?

Enness arranges income tax loans of £100,000 or more, and we can do this at pace. We can arrange offers in as little as 1-2 days, which is critical as the January 31st payment deadline approaches. This also means we can help you complete these deals for your clients before Christmas, which is often beneficial simply for peace of mind and planning finances into 2023. If your client needs a large loan because of a significant income tax liability, you will benefit from a negotiated deal and working with a broker like Enness that can deliver a solid presentation of facts to lenders, especially if your client has complex income structures. 

Income tax loans can be ideal for high-net-worth individuals, business owners and successful entrepreneurs because they often can have substantial liabilities in this respect. Your clients with significant income tax liabilities may also benefit from managing cash flow and retaining liquidity – potentially for acquisitions, asset purchases or high return-on-investment projects, making this type of finance especially advantageous.

If your clients have a good asset base and significant overall wealth that we can show to give lenders comfort, we may also be able to arrange income tax loans even if your client doesn't currently have the capital available to cover the income tax liability before the upcoming HMRC deadline. We regularly work with advisers and individuals faced with this scenario, which can occur if your client has had a short-term gap in income or they have needed to pay other expenses, creating a non-critical shortfall of capital to put towards their HMRC payment. Here, we can present all the case facts to the lender, underlining your clients' broader financial position to support lending. We can usually arrange access to a loan just as quickly as we can for clients opting for this type of finance to manage cash flow, even if your client wants to borrow £100,000 or more.

 

Corporate financing and lender introductions are unregulated.

 

 

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