It is easy to see why Part 7A was introduced complicated though the legislation may seem. The legislation seeks to tax income paid through third-parties such as trusts and associated companies and which are established to avoid or defer the payment of income tax. This can include payment of benefits, earmarking a benefit or making a loan to a member the 'relevant steps'. It looks like the definition of an occupational pension scheme although the legislation was not directly targeting these arrangements.
To understand how Part 7A is relevant to the financial adviser, it is worth noting two important principles about Part 7A:. The practical significance of Part 7A is that it requires contributions and benefits to be taxed as soon as there is a relevant step: a contribution is paid in respect of a member, funds are earmarked, a loan is made to an individual whereas under the EFRBS legislation tax is incurred when the benefit is paid.
Benefits that have, in effect, already been taxed when the contribution was paid or there was a relevant step under Part 7A are not taxed when distributed if paid as a lump sum or if generated by member contributions although there may be IHT difficulties with personal contributions if they are treated as gifts with reservation. Income benefits are taxed and a broad interpretation of what constitutes income is taken by HMRC which may include so-called 'capital withdrawals'.
The inheritance tax rules, unlike income tax rules, are not concerned with when benefits are taken. However, although funds that accrued prior to 6 April are likely to be held in relevant property trusts they continue to enjoy an exemption from IHT that applied to sponsored superannuation schemes established prior to that date i. If contributions continued after 5 April , the fund may be apportioned for these purposes.
The exemption is not lost if funds are transferred to another scheme. As we have seen, contributions paid by an individual and conceivably through an employer may be regarded as gifts with reservation for the purposes of the IHT computation.
Where the employer is a close company, there could be a charge on the participators broadly the shareholders on a transfer of value, but it is likely that relief will be available because either the contributions are deductible for tax purposes S12 IHTA or, if not, because they are not intended to confer gratuitous benefit - S10 IHTA Special rules apply to transfers from close investment companies.
This means that there is likely to be a charge on each ten-year anniversary and when benefits are taken and property leaves the scheme.
An exception to this, to prevent double-charging, is that the exit charge will not apply if the scheme pays a pension income. However, there are a number of specific exemptions.
For example, there will usually be no such liability if the payment would have been treated as an authorised payment had the scheme been a registered pension scheme. Of more practical significance, there is unlikely to be an NI liability if the benefit from the EFRBS is enjoyed after employment with the sponsoring employer has ceased.
As a broad rule, a 'qualifying benefit' under EFRBS rules or a relevant step under Part 7A will generate a tax charge on the employee and a deduction for the employer. The deduction is allowed for the accounting period in which the benefit is paid. It has not attempted to describe the options available under offshore schemes or offshore investments in UK schemes.
It is a difficult topic to master because it extends to three regimes from FURBS to disguised remuneration. Furthermore, the tax considerations relate to income tax, capital gains tax relatively straightforward and predictable , National Insurance and inheritance tax. This is specialist territory. Job title Click to edit. Job title No Content This field is required. Company Click to edit. Company No Content This field is required. Country Click to edit. Country No Content This field is required.
Complete all the fields above to proceed to the next step. Mobile phone. Mobile phone Click to edit. Mobile phone No Content This field is required. Practice Areas you work in Click to edit. Practice Areas you work in No Content This field is required. Number of of Fee Earners. Number of of Fee Earners Click to edit. Office postcode. Office postcode Click to edit.
Office postcode No Content This field is required. Public Law. Legal Categories. Discover LexisPSL. News 4. Consultation on DB consolidation—are superfunds the future? Practice notes 6. Where s 3 3 is engaged, the omission is treated as a disposition made at the very last moment at which the right in question could have been exercised. As s 3 3 treats an omission as a disposition, it appears — at least based on the discussion in Parry — that s 10 dispositions not intended to confer gratuitous benefit might apply if the relevant conditions are met.
This was held to be so notwithstanding the discretion afforded the trustees regarding who would receive the funds. And as it was not shown that the omission was not deliberate, s 3 3 was therefore judged to have been engaged. Section 10 was considered not to exclude the omission from being a transfer of value because the deceased had, as at least one motivating factor, the intention to increase the death benefits.
As a consequence, inheritance tax was due. As the discussion above sets out, the analysis of s 3 3 turns firstly on the rights involved. This means that the specifics of the rights involved vary from scheme to scheme and so it is necessary to consider each on its own merits. That said, a not unusual example might be a right to a pension at retirement as defined in the deed, which can vary with the fund balance to provide death benefits, but with the option of exchanging the pension entirely for a lump sum and probably nil balance for death benefits.
A member seeking to draw a smaller pension than stipulated if allowed or defer a pension, or opting not to elect for a lump sum, may wish to consider the risk of s 3 3 applying.
Of course, the risk depends on a wide range of factors. Deferring benefits while still working at age 55 say might be distinguished from Parry in the event of an untimely death on the basis that the member intended to draw benefits at a later date and had no gratuitous intent towards another. However, a continual deferral of benefits at age 80 say would, based on Parry, appear to be within s 3 3 and might carry a higher risk, depending on the facts.
There might be reasons for such a deferral to engage s 10, but again it would turn on the facts and the evidence that could be provided to support those facts, which may in turn also be viewed with some element of hindsight. Deferring retirement benefits specifically with the intention of increasing the death benefits payable could be problematic.
However, such an argument would be likely to require a tribunal hearing to resolve. However, the decisions that a member makes in respect of retirement benefits may mean that this is not so.
0コメント