Specialist US UK Tax Services: Loan Charge Settlement 2026
Specialist US UK Tax Services for Americans offered HMRC's 2026 Loan Charge Settlement: how the offer is calculated, the US return fallout, and what to file.
Settling the loan charge, both sides
For a US citizen who used a UK disguised-remuneration loan scheme, HMRC's 2026 Loan Charge Settlement Scheme recomputes the UK bill year by year, strips out most interest and penalties, and caps the total discount at £70,000. Accepting it closes the UK side, but it also changes UK tax for earlier years, which reopens the US returns.
That second consequence is the one almost nobody writes about. UK commentary on the settlement treats it as a purely domestic event, and US commentary barely acknowledges the loan charge exists. For an American banker, IT contractor or oil-and-gas engineer who was paid through a loan arrangement between 2010 and 2019, the offer letter is the start of a two-country compliance exercise. Our Specialist US UK Tax Services treat it that way: the HMRC figure is checked, the acceptance window is used to rebuild the US position, and both filings are prepared to agree with each other. This guide explains, in order, what the offer computes, what it means for your IRS returns, and what to have ready before the deadline.
What is the 2026 Loan Charge Settlement Scheme?
The loan charge was introduced to tax disguised-remuneration loans made on or after 9 December 2010 that were still outstanding on 5 April 2019. Rather than taxing each loan when it was paid, it bunched every outstanding balance into a single charge in the 2018 to 2019 tax year, with an option to spread it over three years. Bunching many years of income into one year pushed most high earners into the top rate on the whole amount, and it is that feature the settlement scheme now unwinds.
Following an independent review, the government legislated a settlement opportunity in Finance Act 2026, and the implementing regulations came into force on 5 August 2026. On 7 September 2026 HMRC published guidance on how it will implement the Loan Charge Settlement Scheme. HMRC has begun writing to people it considers eligible with formal offers, prioritising those who have already said they want to settle. The broader background, including how the original charge was reported, sits in HMRC's loan charge guidance.
To be within the scheme, you must be liable to the loan charge. The scheme covers disguised-remuneration income received between 9 December 2010 and 5 April 2019. The published guidance does not deal separately with individuals who now live outside the UK, and we do not speculate on that here: if you have received an offer, the offer itself is the starting point.
How does HMRC calculate the settlement amount?
The central change is that liability is worked out for each tax year in which you actually received income through the arrangement, rather than as one bunched sum in 2018 to 2019. HMRC's guidance sets out five steps for individuals.
Step 1: gross income through the arrangement, year by year
For each tax year, HMRC totals the gross income you received through the arrangement: untaxed loans, any amounts that were taxed, and the promoter's fees. HMRC uses the information it holds, information you provide, or a reasonable estimate. Where you cannot evidence the promoter's fees, HMRC estimates them by grossing up the untaxed loans by 15%. For a contractor whose statements show the fee deductions clearly, supplying those records can produce a more accurate figure than the default.
Step 2: simplified Income Tax and National Insurance
HMRC then calculates the additional Income Tax and National Insurance contributions for each year on a simplified basis. The guidance lists items that are left out of the calculation, including Scottish rates, dividend and savings rates, the marriage allowance, capital gains, student loan repayments and the High Income Child Benefit Charge. Because the income is spread back across the years it was earned, a large part of it can fall into the basic and higher rate bands of each year rather than all being taxed at the top rate in one year.
Step 3: the promoter-fee deduction, up to £10,000 a year
For each year, HMRC deducts an amount calculated on that year's gross arrangement income: 10% of the first £50,000 plus 5% of the next £100,000. The deduction is capped at £10,000 for any year and cannot reduce that year's additional tax below zero. For a high earner, the cap is reached once annual arrangement income hits £150,000.
Step 4: add the years together and deduct £5,000
The remaining amounts for every year are added together and a single £5,000 is deducted. This deduction cannot take the total below zero. This is the settlement amount before the cap test.
Step 5: the £70,000 cap on the total discount
HMRC then compares the settlement amount with the "loan charge gross liability". That is a simplified estimate of the Income Tax and late-payment interest on your loan charge liability in the 2018 to 2019 tax year, with interest running from 31 January 2020 to 30 October 2024. If the gap between the two is more than £70,000, the settlement amount becomes the loan charge gross liability minus £70,000. If you made a spreading election across 2018 to 2019, 2019 to 2020 and 2020 to 2021, the gross liability totals all three years.
For most modest cases the cap never bites. For the readers of this guide, it frequently does: with six-figure annual loans over several years, the gap between the bunched charge and the per-year recalculation can easily exceed £70,000, and the cap then sets the bill.
An illustrative calculation
The figures below are hypothetical and the simplified tax amounts are assumed rather than calculated. The point is to show how the steps interact, not to predict your offer.
| Step | Year A | Year B | Total |
|---|---|---|---|
| Gross arrangement income (step 1) | £80,000 | £160,000 | £240,000 |
| Assumed simplified tax and NICs (step 2) | £30,000 | £68,000 | £98,000 |
| Promoter-fee deduction (step 3) | £6,500 | £10,000 (capped) | £16,500 |
| Remaining per year | £23,500 | £58,000 | £81,500 |
| Less £5,000 (step 4) | £76,500 | ||
| Assumed loan charge gross liability (step 5) | £170,000 | ||
| Discount before cap | £93,500, above £70,000 | ||
| Settlement amount after cap | £100,000 | ||
Amounts you have already paid against the loan charge are then deducted from the settlement amount. That includes payments under contract settlements made after 1 June 2021 and payments under formal assessments. Payments made on amounts that were not final, for example while an appeal was open or under an accelerated payment notice, are set against the settlement first, then against other HMRC liabilities, and any excess is refunded. Credits cannot take the settlement below zero or be used elsewhere.
What happens to interest and penalties?
Interest and penalties are where the scheme gives the most relief. The per-year settlement amount itself is not built up with late-payment interest; interest appears only inside the gross liability used for the cap test, and there it stops at 30 October 2024. HMRC's guidance says it will not charge late-payment or late-filing penalties under the scheme, and will waive behaviour-related penalties except where it has evidence that an inaccuracy was deliberate and that attempts were made to conceal it. Penalties you have already paid are not credited back, but earlier charges linked to the settled arrangements are no longer payable.
If you also have disguised-remuneration liabilities that are not loan charge liabilities, and HMRC assessed them or opened an enquiry before 26 November 2025, you must settle those, with their late-payment interest, at the same time. Where both kinds of liability fall in the same tax year, they are calculated separately under their own rules.
Do you have 90 days or longer to accept?
Every offer allows at least 90 days. Most people get longer, but some get exactly 90 days and no more. This is the single most important fact on the offer letter, and the one to read first.
- Only 90 days: your loan charge liability is already final but unpaid; you have already notified an appeal to the First-tier Tribunal; or you have already agreed a contract settlement with HMRC.
- Longer: you have an open enquiry into your loan charge position, or an appeal that has not yet been notified to the Tribunal. You can then settle until your liability becomes final or the appeal is notified to the Tribunal, whichever comes first, and always for at least 90 days.
If you are in a 90-day group and do not accept in time, you cannot settle under the scheme and HMRC will pursue the liability through its normal collection action. There is no second window. For an American client, 90 days is also the whole of the time available to rebuild the US side before committing to a UK figure, so it should be treated as a working deadline, not a reading period.
Where the employer comes first
Where an employer operated PAYE on loan charge amounts and was UK-based and in existence on 5 April 2019, HMRC will try to collect from the employer first. Employers receive offers at the same time as employees, and your individual offer stays open while HMRC pursues the employer. If you control a personal service company, you must settle before the company notifies an appeal to the Tribunal.
Were the loans taxable income for US purposes?
This is the question the UK settlement cannot answer for you. As a US citizen you were taxable on your worldwide income in every year the loans were paid, wherever you lived. US tax law looks at substance rather than labels: compensation for services is gross income however it is described. A genuine loan, with a real obligation and expectation of repayment, is not income. An arrangement in which your day rate was routed to you as an interest-free "loan" that nobody intended to call in looks, in substance, like pay received in the year it was paid.
Many Americans in these schemes followed the UK labelling on their US returns and reported little or nothing of the loan receipts. Others reported them as wages. A third group has not filed US returns for the period at all. Which group you are in shapes everything that follows.
Received as pay, or income only when released?
If the loans were compensation when received, the income belongs in the US years in which the money arrived, broadly matching the years HMRC now uses. If instead the loans were treated as genuine debt, the US income event may be later, when a loan is released or written off, and it may be characterised as cancellation-of-debt income. The two analyses produce different years, different amounts and a different interaction with the foreign tax credit. They should be decided on the documents, the loan agreements, the scheme's own records and what actually happened to the balances, not by default.
Could the foreign earned income exclusion have applied?
If you were living and working in the UK and the payments were earnings for services performed there, the income may have been eligible for the foreign earned income exclusion on Form 2555, subject to the annual limit and the residence or physical presence tests for each year. Claiming the exclusion on a late or amended return has its own conditions. Where it is available, it can change which income is left exposed to US tax and therefore how much UK tax is needed as a credit.
How does UK tax settled in 2026 reach the US returns?
Here is the timing problem in one sentence: you pay UK tax in 2026 that is calculated by reference to income from tax years as early as 2010 to 2011. The US foreign tax credit rules have to decide which US year that tax belongs to.
Under the original loan charge, the UK tax related to 2018 to 2019 (or the spread years). Under the settlement, HMRC computes the liability for each year the income was received. If you had already claimed a credit on a US return for UK loan charge tax, or if you accrued the credit on the basis of the original bunched figure, the settlement changes the amount of foreign tax. That is a foreign tax redetermination under section 905(c), and it is your obligation to notify the IRS and, where required, amend. We explain the mechanics, including Schedule C of Form 1116, in our guide to section 905(c) foreign tax redetermination, and the IRS's own summary is on the About Form 1116 page.
Cash or accrual basis matters
Individuals who claim the foreign tax credit on the cash basis generally claim it in the year the tax is paid. Those who have elected to claim on the accrual basis generally claim it in the year to which the tax relates, which for a settled loan charge may be several earlier years. The choice, and any prior election, decides whether the 2026 payment is credited on your 2026 return or pushed back into amended returns for the loan years. It is not a choice to make casually, because an accrual election generally binds later years too.
Credit only works where the income was taxed
A foreign tax credit reduces US tax on foreign-source income in the same category. If a loan year was never reported as income on your US return, there may be no US tax for the UK tax to offset until that year is corrected. Conversely, if you reported the loans as wages and paid US tax without any UK credit, the settlement may create a credit you can now claim. The foreign tax credit has an extended period for refund claims attributable to foreign taxes, generally ten years from the due date of the return for the year in which the taxes were paid or accrued, which keeps many of these corrections open. The US-UK income tax treaty's relief-from-double-taxation article sits alongside these rules but does not replace the Form 1116 mechanics.
US versus UK: the settlement side by side
| Issue | UK (HMRC) | US (IRS) |
|---|---|---|
| What is taxed | Disguised-remuneration income, recalculated per tax year received (9 Dec 2010 to 5 Apr 2019) | Worldwide income; loans that were in substance pay are compensation in the year received |
| Tax year basis | 6 April to 5 April | Calendar year, so each UK year straddles two US returns |
| Headline relief | Promoter-fee deduction up to £10,000 a year, £5,000 flat deduction, discount capped at £70,000 | None specific; relief comes through the foreign tax credit or the foreign earned income exclusion |
| Interest | In the cap comparison only, and only to 30 Oct 2024 | Runs on any underpaid US tax from the original due date until paid |
| Penalties | Generally waived; exception for deliberate and concealed inaccuracy | Depends on the route used to correct the returns |
| Deadline | At least 90 days; only 90 for some groups, with no later chance | No fixed deadline, but limitation periods and credit claim windows run |
| What you file | Signed acceptance and payment or instalment agreement | Amended or late Form 1040s, Form 1116 with Schedule C where needed, and any missed information returns |
Are the old US years still open?
Often, yes, and more of them than people expect. The general US assessment period is three years from filing. It extends to six years where you omitted more than 25% of the gross income stated on a return, which a large unreported loan stream can easily trigger. Where no return was filed, the period never starts. And where a required international information return, such as Form 8938 or Form 5471, was not filed, the assessment period for the related return can stay open until it is. The income side of the analysis therefore cannot be treated as time-barred without checking each year.
Reporting the accounts the money passed through
Loan proceeds usually landed in UK bank accounts. If the aggregate balance of your non-US accounts exceeded $10,000 at any point in a year, an FBAR was due for that year, and Form 8938 may also have applied depending on your filing status and residence. Missed FBARs and Form 8938s are often the larger exposure in these cases, and correcting them sits naturally alongside the income work. Our FBAR penalty calculator gives an indication of the range.
Choosing a correction route
Where the failure to report was non-wilful, which is common among contractors who relied on the scheme's own representations, the IRS streamlined procedures may be the right route. They look back over the most recent three years of returns and six years of FBARs; loan years before that window are handled differently, which is precisely why the income and credit analysis needs mapping first. We cover eligibility on our IRS streamlined filing page. Where there is any question over wilfulness, the route needs more care before anything is filed.
What should you prepare inside the acceptance window?
Treat the window as a compliance project with a fixed end date. In order:
- Confirm your deadline. Establish from the letter whether you have 90 days or longer, and diarise the date.
- Collect the arrangement records. Loan agreements, statements of each payment, promoter fee deductions, any taxed amounts, and correspondence with the scheme or employer, all by UK tax year.
- Check HMRC's step 1 figures. Compare the gross income per year with your records, and supply actual promoter fees where the 15% estimate overstates them.
- Test the cap. Recalculate the loan charge gross liability and confirm whether the £70,000 cap applies to you, and that payments already made are credited.
- Reconstruct the US position for every loan year. Identify what was reported, what was not, and which returns were filed at all, splitting each UK year across the two US calendar years it covers.
- Decide the US characterisation. Compensation when received or later release income, and whether the foreign earned income exclusion was available.
- Model the foreign tax credit. Map the settled UK tax to US years on the correct cash or accrual basis, and quantify the redetermination.
- Inventory information returns. FBARs, Forms 8938 and any other forms that may have been missed.
- Accept, then file. Accept the UK offer within the window, arrange payment or an instalment plan if needed, and file the US corrections on a sequence that reflects the UK figure actually paid.
Enquiring with HMRC does not commit you to settle. HMRC can be contacted on its published counter-avoidance lines, and you can ask for more time to gather records where your group allows it.
Common mistakes Americans make with the settlement
- Treating it as UK-only. Accepting the offer and filing nothing in the US leaves a known redetermination unreported and, often, unreported income behind it.
- Using the bunched 2018 to 2019 figure on the US return. Once the UK liability is recalculated per year, any US credit built on the old figure is wrong.
- Ignoring the calendar-year split. A UK year from April to April feeds two US returns; allocating it to one year distorts both.
- Letting the 90 days run while the US work starts. Groups with a strict 90-day window lose the offer entirely if they miss it.
- Forgetting the accounts. Missed FBARs and Forms 8938 frequently outweigh the income tax itself.
Where specialist help makes the difference
The settlement scheme is a genuine improvement for most people who used these arrangements, and for high earners the £70,000 cap is usually the number that matters. But for a US citizen, the UK acceptance is only half the filing. At Jungle Tax we prepare both sides from one set of records: we check HMRC's per-year computation and cap test, reconstruct the US reporting for each loan year, prepare the amended or late US returns with the foreign tax credit and section 905(c) statements, and bring missed FBARs and Forms 8938 up to date. We do this as return preparation and compliance, working to your offer deadline. Wider context on our US-side work is on our US tax services page, and our US-UK tax accountants page explains how we staff cross-border engagements.
If you have received a Loan Charge Settlement Scheme offer and hold US citizenship or a green card, the acceptance window is the time to act. Contact our cross-border team for a confidential consultation, and we will tell you, within days, what your UK figure should be, which US years it touches and what needs to be filed before your deadline.
