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HMRC internal manual

Trusts, Settlements and Estates Manual

HM Revenue & Customs
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Trusts for particular purposes: employment-related trusts: summary for FURBS and EFRBS - resident trustees (EBT2)

This memo contains information, advice and action points for

  • the Trust Office dealing with the FURBS or EFRBS trust
  • the tax office for the company
  • the employment income tax office

About the trust

[Name of the FURBS or EFRBS trust]

On [date] [name of employer] established an unapproved retirement benefit scheme/employer-financed retirement benefit scheme

The scheme is known as ‘funded’. Each participating employer contributes to the scheme. The scheme funds are held in the trust. The trustees pay benefits (pensions/lump sums) out of the contributions.

The Trust Office

Initial action; - Issue returns annually to the trustees.

Liability on income


Periods up to 5 April 2006 - FURBS trusts

Income arising to FURBS trustees from the invested contributions was chargeable at the lower/basic/ordinary trust rate only, and escaped the charge to tax at the rate applicable to trusts/dividend trust rate. This is because the scheme provides for ‘relevant benefits’ (defined in S612 ICTA 1988) only. The exemption was in S686(2)(c) ICTA 1988. But see Actions 1 and 2 below. If the FURBS trust is wound up, see TSEM5357 - TSEM5359

Action 1

The exemption does not apply, and the FURBS trustees are chargeable at the rate applicable to trusts/dividend trust rate, if the trustees

  • have trading income, and/or
  • invest the contributions in a way that does not give a commercial return, for example
  • non-commercial rate loans
  • investing a significant part of the funds in non-income producing assets.

If you discover such a situation, advise the trustees they are liable at the rate applicable to trusts/dividend trust rate. Refer any objection to Trusts & Estates Technical Edinburgh

Action 2

If the trustees use the contributions to provide benefits that are not within the definition of relevant benefits, at S612 ICTA 1988/S393B ITEPA 2003, for example

  • non-commercial rate loans to a member
  • occupation of a trust property either rent free or below the open market
  • rent free use of a trust asset

the ICTA88/S686(2)(c)(i) exemption pre April 2006 may not apply, and/or it may be an indication that a member is the settlor, in which case the Settlements legislation may treat the scheme’s income as the settlor’s. If you become aware that any of the above points applies, submit the case to Trusts & Estates Technical Edinburgh.

Periods from 6 April 2006 - EFRBS trusts

The exemption from tax at the special trust rates is abolished, and EFRBS trusts are taxable at the rate applicable to trusts/dividend trust rate/special rates for trustees’ income.

The Settlements legislation

Information: -The Settlements legislation in Chapter 5 Part 5 ITTOIA will not apply if the scheme is operating on normal commercial lines as part of an employment package. But in certain circumstances you may consider whether the Settlements legislation applies to charge the FURBS/EFRBS trust’s income and gains on a director.

Action: -The Settlements legislation provisions can apply if the trust is apparently not genuinely to provide retirement benefits and/or the beneficiary of the trust has directly or indirectly provided funds for the settlement (see TSEM4120). Apply the following guidelines when examining trust returns and accounts, and liaise with the tax office for the company and the employment income tax office, or submit to Trusts & Estates Technical Edinburgh, as necessary.

  • The Settlements legislation will not apply where only the employer makes contributions - unless the contributions are

    • made by a close company which a member controls and
    • unrealistically large by normal commercial standards.

For example, if there is only one director who is also the sole shareholder of the employing company, and substantial contributions are made into the FURBS/EFRBS, you may consider whether the Settlements legislation applies to treat the director/shareholder as the settlor. If you think this may be the case, you must liaise with the tax office for the company. They will consider whether to deny a deduction for the contributions.

  • The Settlements legislation will not apply if a member makes contributions and these are reasonable compared with the member’s salary. If you consider the Settlements Legislation may apply, submit your papers to Trusts & Estates Technical Edinburgh.

The tax office for the company


Information: - Guidance on whether the contributions into the scheme are allowable is at BIM46140 onwards. For external customers the information is at . S76 FA 1989 deals with the timing of any deductions due.

The employer’s contributions are allowable only if they are chargeable as employment or pension income on a member or another person. Where due, a deduction is given for the period in which the employer makes the contribution (S76 (4)). This ensures the payer’s relief matches the employee’s charge as to both time and amount.

Advice: - If you cannot resolve a problem about this, refer the case to CT and VAT (Trading and Property Income Team).

Action 1

There may be tax avoidance opportunities if a company is ‘close’ and a member is a participator with a significant interest in the company. You may want to consider whether amounts put into the scheme by the employer are commensurate with a normal commercial provision for the employee concerned.

Action 2

If a trading deduction has been successfully denied because the contribution has not been wholly and exclusively expended for the purposes of the employer’s trade, submit the file for the employer to Trusts & Estates Technical Edinburgh so that they can consider whether the Settlements legislation applies.


Information: - Pensions that the trustees pay are chargeable as pension income by virtue of s569 ITEPA 2003 (because of s393(2) ITEPA 2003).

Advice: -Refer any problem to PAYE, SA and NICs Group, Employment Income (Technical) Solihull.

Lump sum gratuity or other benefit

Information: -s394 ITEPA 2003 deals with lump sums gratuities or other benefits that trustees pay. A benefit will be chargeable if it is a relevant benefit within the definition at S393B ITEPA 2003. Where the employee has contributed to the provision of the lump sum the charge may be reduced as set out in S395 ITEPA 2003. It should be noted that up until 5 April 2006 the view taken by HMRC was that non-cash benefits were not within the definition of relevant benefits. From 6 April 2006 the definition of a relevant benefit is within S393B ITEPA 2003 and specifically includes non-cash benefits.

Before 6 April 2006 there was a charge on contributions to a non-approved retirement benefit scheme under S386 ITEPA 2003. Any schemes that continue after 6 April 2006 will now be employer-financed retirement benefit schemes and there is no longer a charge arising on the individual in respect of contributions made after 6 April 2006. There are transitional provisions (paragraphs 53 to 55 Schedule 36 Finance Act 2004) to protect relief for tax paid under S386 ITEPA before 6 April 2006 where the lump sum is paid after 6 April 2006.

Advice: -Refer any problem to Pension Scheme Services, Fitz Roy House, Castle Meadow Road, Nottingham NG2 1BD

Action: - Inform Trusts & Estates, Technical Group, Edinburgh where a member of a FURBS/EFRBS has died, giving full name and date of death.

National Insurance contributions (NICs) position up to and including 5 April 2006

For information about the NICs position on:

  • an employer’s payment into a FURBS; see NIM02157 - NIM02160. External customers can find this information from - /NIM02160.htm SCS106/04 and Newsboard Message 740/05 (which is available via the ‘Information Store’ on the PAYE, SA and NICs Intranet site); and

payments out of a FURBS, see NIM02161. External customers can find this information at /NIM02161.htm

For advice, contact your PAYE, SA and NICs Technical Newcastle

National Insurance contributions (NICs) position from 6 April 2006

For information about the NICs position on:

  • an employer’s payment into an EFRBS on or after 6 April 2006 see NIM02757; and

a payment out of a EFRBS see NIM02760 (contents). External customers can find this information at and

For advice, contact PAYE, SA and NICs Technical, Newcastle

Disclosure of Tax Avoidance Schemes and AAG Intranet

Employee benefit trusts are often used to facilitate avoidance of PAYE/NI and CT liabilities. The disclosure of tax avoidance schemes introduced on 18 April 2004 requires promoters of schemes subject to the regulations to disclose them to AAG (Disclosure and Risk) within 5 days of their being made available to prospective user. Users of disclosed schemes are identified through notification of an 8 digit Schemes Reference Number (SRN) issued by the AAG. In most instances this is reported direct to the AAG who inform the Lead Office responsible for co-ordinating enquiries. However some employers report the SRN on their CTSA Return or within computations. If you identify an SRN please refer to the Disclosed Scheme pages of the AAG Intranet site, click on the SRN, and follow the advice given. The Current Schemes page also contains details of known employee benefit trust schemes and advice on action to be taken.