Following on from the draft legislation announced on 9 December
2010, we would like to set out Ogier's position as to our
existing trust arrangements.
The types of plans immediately affected by the legislation are
trusts and other vehicles used to deliver incentive plans in the
form of cash deferral arrangements and alternative pension
arrangements such as EFRBS (but exclude QROPS - qualifying
registered overseas pension schemes). It may also, as currently
drafted, have an impact on certain share plan transactions such as
loans to employees.
Although the legislation is effective from 6 April 2011, there
are certain anti-forestalling measures introduced with effect from
9 December 2010, thus capturing existing plans in the legislation
and any new transactions initiated in those plans that are caught
by the new rules.
Cash Deferral Plans
Our immediate suggestion is that employers do not make sweeping
changes to their existing plans until more certainty on the fund
form of the legislation exists.
We are working with several leading tax advisors who are
lobbying the UK Government to firstly clarify their intentions
through the legislation and secondly to have certain forms of plans
exempted from the legislation. An example would be plans that would
meet the FSA's Remuneration Code that takes effect from 1
January 2011 eg: deferral of bonuses into structures for a period
of time to retain individuals and ensure that they meet certain
targets or performance criteria before their bonuses vest and they
are taxed on the proceeds received.
New contributions to trusts should be reviewed by tax advisors
prior to the making of such payments. Although we understand that
the receipt of new contributions between 9 December 2010 and 5
April 2011 may not trigger a tax charge, even if
"earmarked" for certain beneficiaries, there are various
ways in which the legislation can be interpreted. We would
therefore like to have a tax review prior to accepting new trust
assets to ensure that we do not inadvertently trigger a tax charge
on the individuals involved.
Loans made to individuals between 9 December 2010 and 5 April
2011 will not trigger a tax charge unless the loan remains
outstanding on 6 April 2012, at which point a tax charge will be
triggered. Bridging loans whilst beneficiaries rearrange their
financial affairs can therefore be accommodated during the next few
months, however loans taken out after 5 April 2011 will trigger the
new income tax charge on drawing down the loan.
Participants who would like to benefit from the tax free roll-up
of investment returns and who do not require loans from the trust
can, we understand, still take advantage of such arrangements. We
would recommend that personal tax advice is taken to fully
understand the tax position.
None of the EFRBS plans that Ogier administer allow for loans to
be made to participants. This lowers the overall risk that a
trigger event may occur and thus create a tax liability in relation
to a benefit provided from the trust. We would still encourage
employers and members to ensure that tax advice is obtained to
understand how the plan can best be operated under the current
Our understanding is that the existing plans can continue, with
new contributions potentially being possible until 5 April 2011.
Again, we would encourage companies to take tax advice prior to
making further contributions to the trust.
The provision of benefits post retirement will trigger
employment tax charges, however this was always the case for these
plans albeit that a possible 10% abatement was available if
benefits were in line with UK approved pension schemes.
We are currently unclear as to the position where someone is
non-UK resident when they take a benefit and how that may be taxed
(based on double tax treaties in place) and we would strongly
advise participants to take personal tax advice in relation to such
Our understanding is that UK approved share plans and
non-approved share plans that fall under the employment related
securities legislation are excluded from these provisions, however
we would still encourage employers to clarify this with their tax
advisors ahead of recommending transactions to offshore share plan
Once again we would suggest that no actions are initiated until
clarity is available on the drafting and any potential exemptions
have been considered.
We are in contact with all of our tax advisors and can provide
updates with any new information should you be considering
requesting a benefit or making any new contributions to plans.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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