School Fees Planning - Through Your Business

Welfare Trust

Contributions to a Welfare 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 contributions. Always, remembering there needs to be a realistic relationship between the company’s profit, earnings of the relevant individuals and the trust contribution:

Welfare Trust for current & prospective employees

A Welfare Trust provides a structure that allows a business to pay profits into an offshore trust from a UK trading or investment company, where assets grow free of all taxes. The structure is designed to provide incentives to current and prospective employees.

The  contribution 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 for School Fees

The Trustees of the Welfare Trust have the freedom to invest in loans.  Therefore the business owner could have non-taxable access to the trust's funds through loans on commercial terms to pay school fees. 

Any interest paid on the loan to the Trust will ultimately be for the benefit of eligible members of the unapproved pension scheme; including the business owner. 

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.