Government could kill pensions tax scheme

Independent financial advisers have warned that high net–worth individuals
were being sold a pension tax scheme that could soon be ruled out by the
government.

AWD Chase
de Vere said Employer Financed Retirement Benefit Schemes (EFRBSs)
were being peddled to high net worth individuals by other advisers despite the
clampdown.

Since the pension anti-forestalling rules were introduced in the 2009 Budget,
cracking down on pension contributions into offshore vehicles, employee benefits
advisers have been heavily promoting EFRBS as an attractive alternative to
registered pension schemes, AWD said.

Param Basi, technical pensions director, AWD Chase de Vere, said: “With so
much uncertainty hanging over the future of EFRBS we have serious concerns that
they are being actively recommended to corporate clients and high earners, when
in a few months they may no longer be appropriate.”

EFRBS can appear attractive, because they are not liable to income tax or
national insurance on employer contributions.

But the government has announced that it is currently reviewing trust
arrangements used to remunerate high earners, including EFRBS because it
believes the arrangements deny revenues to the Exchequer.

In terms of pensions, the taxman wants to class the EFRBS as part of
employment income, making them liable to tax.

“There is a real fear that genuine employee benefits arrangements will be
penalised in this review,” Basi added.

AWD Chase de Vere will continue to speak with corporate clients about EFRBS
and consider them as a potential option for high earners, Basi said. However the
financial adviser said it would remain “very sceptical about any implementation
until their future position is clearer”.

HMRC has said previously: “The government will be taking action to prevent
efforts to avoid tax and National Insurance Contributions (NICs) on earnings
provided through the use of trusts and other vehicles.”

“Employers and employees are entering into arrangements using trusts and
other vehicles that seek to avoid, defer or reduce liabilities to income tax and
NICs on earnings or that seek to avoid restrictions on pensions tax relief.”

Further reading:

Budget
clamps down on retirement scheme tax avoidance