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The Settlements legislation

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

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

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.聽The Settlements legislation will not apply if a member makes contributions聽that聽are reasonable compared to their salary. If you think the Settlements Legislation may apply, see 聽(TSEM4000) onwards.

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