Last chance for EFRBS?

Wednesday, December 01, 2010 | Posted by: Sue Knight
Categories: Protecting your wealth | Tags: tax, tax planning, HMRC, HNWIs, Sue Knight, pensions, Employer Financed Retirement Benefit Scheme, retirement, EFRBS, remuneration, high earners, Finance Bill 2011, QNUPS

When the taxman turned his spotlight on Employer-Financed Retirement Benefits Schemes in 2009, it was with the aim of making this kind of tax planning less attractive. A year on, the death knell for EFRBS tax advantages may be sounding, but an alternative pension pot for high earners may live on.

Last year, I wrote about the prospects for Employer-Financed Retirement Benefits Schemes (EFRBS) following HM Revenue & Customs’ (HMRC’s) announcement that it was actively challenging some EFRBS arrangements.

HMRC has now announced that the Finance Bill 2011 will include legislation to ensure that funded EFRBS are “no more attractive than other forms of remuneration”.

But what will the changes be? Is this the death knell for EFRBS? And how will HMRC make EFRBS less attractive?

UPDATE: Read our Budget 2011 update on EFRBS. 

Changes may include:

• taxing members of EFRBS when sub-funds are created for them;
• taxing members of EFRBS when funds are loaned to them;
• upfront tax charges on payments into an EFRBS;
• legislation to prevent arrangements that seek an immediate corporation tax deduction on payments into the EFRBS; and
• restrictions on what investments can me made within the EFRBS.

We will need to await the draft legislation before determining whether EFRBS contributions on or after 6 April 2011 still confer tax advantages on companies and individual taxpayers.

Is my existing EFRBS safe?
It is impossible to predict with any accuracy what HMRC will do and this is one of the key questions that members of existing EFRBS will be eagerly waiting an answer to.

Should I contribute to an EFRBS before April 2011?
Again, it is difficult to answer this before the release of draft legislation later this year, but there may well be an opportunity to make EFRBS contributions prior to 6 April 2011. If you are considering such action, then seek specialist advice or contact our Private Clients team, who can help with Personal Tax Services.

What is the alternative?
Since it is expected that the tax advantages of EFRBS will be removed from 6 April 2011, what alternatives are there for high earners?

An alternative pension scheme, which came into existence on 15 February 2010, is a Qualifying Non-UK Pension Scheme (QNUPS).

A QNUPS is similarly flexible and shares many of the benefits of EFRBS and other unregistered schemes, but has the downside that an employer cannot contribute to it; contributions are made from taxed income or personal assets.

Given the flexibility that QNUPS provides and the fact that it does not appear to be in immediate danger of attack from HMRC (it was not mentioned in HMRC’s recent discussion document on pensions),it might well be the new alternative pension pot for high earners.

You might also find these posts useful:

* EFRBS appears on the tax authorities’ radar
* Advanced strategies for reducing your IHT bill
* A day in the life of a millionaire: Jonathan Hick

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