Unapproved Retirement Benefit Schemes Print
With various restrictions being applied to registered pension schemes, especially by Annual Allowance (AA) and Lifetime Allowance (LTA) legislation, employers have turned to Employer Financed Retirement Benefit Schemes (EFRBS) to supplement its employees’ retirement benefits.
There are no contribution limits into an EFRBS. Any employer’s contributions paid do not count towards the member’s AA and LTA. In the event of death, an EFRBS is not subject to inheritance tax provided it was structured to provide relevant retirement benefits for an employee. An EFRBS has a wider investment scope compared to a registered pension scheme and many employers did consider an EFRBS a useful alternative when structuring remuneration packages for their employees. However, this has now changed and the attractiveness of an EFRBS has come into question, especially with the introduction of the “Disguised Remuneration” legislation, which took effect from 6th April 2011.
Prior to 6 April 2011 (although some anti-forestalling provisions did apply from 9 December 2010), employer contributions to EFRBS were not taxable on the employee/ director or liable to National Insurance Contributions (NICs) when they were paid into the scheme, and the employer does not obtain a tax deduction for these contributions until benefits start to be paid. The employee/director would then only be taxed upon receipt of retirement benefits. This however has changed and the disguised remuneration legislation imposes a tax charge on the employee when “benefits” are paid, transferred, made available or earmarked. The value of the assets in the EFRBS, in such a situation, would have to be accounted for and treated by the employer as a payment liable to PAYE and deduct the appropriate N I C.
Contributions into a pre-2006 EFRBS would generally be excluded from the effect of the disguised remuneration legislation. This is because such contributions would have already been taxed.
All investment income and capital gains within the EFRBS is taxable at the rate applicable to trusts. For 2021/22 the rates of tax are: 45% on income, 38.1% on dividends and 20/28% on Capital Gains.