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HMRC internal manual

Trusts, Settlements and Estates Manual

Trusts for particular purposes: employment-related trusts: Settlements legislation for EFRBS

 

The Settlements legislation

The Settlements legislation in Chapter 5 Part 5 ITTOIA will not apply if the scheme is operating on bona fide commercial lines, as part of an employment package. But in certain circumstances, the Settlements legislation may apply to charge the EFRBS trust’s income on a director/member.

The Settlements legislation provisions can apply if the trust is not genuinely to provide retirement benefits and/or the beneficiary of the trust has directly or indirectly provided funds for the settlement (see TSEM4120). 

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 EFRBS, the Settlements legislation may apply to treat the director/shareholder as the settlor. The Settlements legislation will not apply if a member makes contributions that are reasonable compared to their salary. If you think the Settlements Legislation may apply, see  (TSEM4000) onwards.

Liaise with the Company tax office to consider whether to deny a deduction for the contributions. Guidance on whether the contributions into the scheme are allowable is at BIM46140 onwards.