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Employer financed retirement benefit schemes (EFRBS)

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7th Sep 2009
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Tax adviser John King outlines how EFRBS schemes can benefit businesses and individuals.

Employer Financed Retirement Benefit Schemes (EFRBS) are an excellent alternative to Registered Pension Schemes (RPS) and offer employers a vehicle to reward and incentivise key staff (including directors) as well as providing a flexible solution to accessing business profits tax effectively.

Although somewhat contentious, EFRBS structures can be designed to achieve a tax deduction at the time of payment of contributions. The aim of Schedule 24 FA 2003 (now para. 1290 et seq. CTA 2009) is to prevent a deduction until taxable benefits are payable, but this can be circumvented with correct planning.

With wide scope for investment and access, employers and business owners can use EFRBS to:

  • Obtain tax relief on scheme contributions
  • Access scheme funds with minimal tax liabilities
  • Invest in a tax efficient manner

Reward key staff as an alternative to bonuses and share schemes

When used as an investment vehicle, EFRBS can be structured as a direct replacement for an overseas pension scheme for a non-UK domiciled employee and also as a CGT and IHT free investment vehicle for UK and non-UK domiciled employees. Distributions by the fund can be received in a tax-free environment, depending on the residence status of the beneficiary.

Funding of EFRBS products is not constrained by the annual allowance restrictions which apply to RPS schemes, nor do the lifetime allowance restrictions apply to the fund value. The product is therefore extremely useful for those who have already used up their lifetime or annual allowances.

In certain circumstances, payments of benefits from EFRBS do not attract National Insurance charges for the benefiting employee of the donor employer.

Unlike a conventional RPS, there are no limitations on the amount of a benefiting employee’s fund that they can access. Similarly, there is no requirement that benefits are taken by the purchase of an annuity.

Tax counsel approval
Our particular EFRBS products have been carefully constructed using available tax reliefs and exemptions provided by the Taxes Acts. We have supporting opinion from eminent tax counsel. When implemented, the product is fully disclosed and completely transparent to the Revenue authorities.

John King has been in the tax profession for 26 years, the first 13 of which were with HM Revenue and Customs and he’s been a freelance tax adviser since 1996. He runs his own tax advisory practice in Kent.

Telephone: 01732 897850
Website: www.taxation-advice.com

 

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