School Fees Planning - Through Your Business

Remuneration & Retention Trust

Contributions to Remuneration and Retention Trusts can be an allowable expense for a trading company; provided they fulfil the usual deductibility requirements.

The payment must be for business purposes and exhibit genuine commercial reality, or the contribution maybe disallowed. 

The nature of the business will determine the scope for allocating contributions between customers, suppliers and employees. Always, remembering there needs to be a realistic relationship between the company’s profit, earnings of the relevant individuals and the trust contribution:

Remuneration Trust

A Remuneration Trust provides a structure that allows a business to pay profits into the trust from a UK trading or investment company. The structure is designed to provide incentives to suppliers, customers and prospective employees.

The company will make a contribution to an offshore remuneration trust; where assets grow free of all taxes.

Retention Trust

A contribution to a retention trust is an Unapproved Pension Contribution for the benefit of current and prospective employees. There will be no National Insurance charge and the contribution is not deemed to be a Benefit in Kind.

Assets within the scheme can grow free of tax in an offshore environment; creating an additional pension fund:

• The fund enjoys greater freedom of investment than an approved pension.

• The fund is not an approved scheme and therefore does not count towards the individual’s lifetime allowance.

• The unallocated fund does not need to be taken as income by a certain age.

• On the scheme member’s death the unallocated fund does not form part of the estate and thus remains available for further planning.

Withdrawals

The business owner can have non-taxable access to the trusts funds through commercial loans. A trust fund is not included in the value of the estate and all accumulated loans will reduce the value of the estate on death, so significantly reducing any potential inheritance tax liabilities.

A by-product is the protection of profits from business creditors, spouses/partners and other potential claimants.