Do these new tax rules apply to your pension schemes?

Possibly. The new draft disguised remuneration rules will apply an immediate tax and NICs charge in relation to contributions made to certain unregistered pension arrangements.

One of the government’s policy aims in introducing this legislation was specifically to target contributions to unregistered pension schemes so that they do not benefit from tax advantages beyond the (new lower) “annual allowance” and “lifetime allowance” that are available in registered pension schemes.

Employers will need to review individual arrangements to ensure that an unexpected tax charge is not levied under the new rules.

What arrangements are exempt?

Registered pension schemes and overseas pension schemes where contributions to such schemes would attract UK tax relief are outside the scope of these new tax laws.

What arrangements are caught?

Employer-financed retirement benefit schemes (EFRBS) fall squarely within the scope of the new legislation.

There is no overarching exclusion for funded unapproved retirement benefit schemes (FURBS), unfunded unapproved retirement benefit schemes (UURBS), correspondingly approved schemes, migrant member schemes or other overseas schemes.

Instead, specific types of steps relating to these schemes are excluded. These include:

  1. Investment growth and asset switches involving amounts “earmarked” (the term used in the legislation) before 6 April 2011 are not generally taxed provided the sums or assets in questions are only earmarked and not actually paid out.
  2. Pension income for unregistered pensions will continue to be charged under the existing income tax legislation and not under the new disguised remuneration rules. This means that pensions income will not be subject to double taxation.
  3. Contributions to unapproved schemes before A-Day.
  4. The purchase of an annuity from an insurance company to the extent that the rights to receive the annuity accrued before 6 April 2011.
  5. Payment of lump sum benefits provided under an EFRBS or a correspondingly approved scheme to the extent that the rights accrued before 6 April 2011.
  6. Transfers between correspondingly approved schemes or overseas pension schemes.


The effect of the new legislation is to fundamentally change (again) the position in relation to unregistered funded “top up” arrangments, i.e. EFRBS and FURBS. Since A day, contributions into an EFRBS have been tax-free on the way in to the scheme on the basis that tax charges apply on the way out. Under the disguised remuneration laws, this will change. Tax will now be levied at the time the contributions are paid in.

Where tax has already been paid on contributions to an EFRBS, it should not subsequently be taxed again on the receipt of benefits – any tax at that point will be limited to the value of the benefits in excess of the amounts initially charged to tax.

Any contributions to or allocation of funds by trusts before 9 December 2010 (when the legislation was introduced) should not be caught by the legislation, including by the anti-forestalling provisions.

After 9 December 2010, an income tax charge should only arise if parties take further steps that would bring it within the anti-forestalling rules, such as paying a loan or transferring an asset to an employee. In this case, a charge will become due on 6 April 2012.

Issus may arise in relation to how contributions to group FURBS are taxed.


The original draft legislation published in December 2010 did not apply to unfunded retirement benefit schemes.

This remains the case for wholly unfunded schemes, but amendments made in the draft legislation published in March 2011 bring certain secured arrangements into the scope of the rules.

HMRC’s frequently asked questions (FAQs) guidance explains that if, for example, an unfunded promise is simply recorded as an entry on the balance sheet as a liability of the employer, then a tax charge will not arise. This will be largely dependent on the facts. A top up promise that has security set aside for it, i.e. a secured UURBs will probably come within the regime and trigger a tax liability.