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Disguised remuneration – are your pension scheme arrangements affected?

08 April 2011

The new Finance Bill contains a complex set of proposed rules on ‘disguised remuneration’, which will impose tax charges on some employer-financed retirement benefits schemes, and certain non-UK schemes.

Employers need to review their current arrangements to avoid unexpected tax charges under the new rules.

The Government is changing the income tax rules so that contributions to unregistered pension schemes should not benefit from any more favourable tax treatment than is available under registered schemes. Not all top-up arrangements will be caught: wholly unfunded arrangements fall outside the provisions, and HMRC’s current view is that unregistered defined benefit schemes should not give rise to charges. However, employer contributions to a defined contribution top-up scheme will give rise to a charge at the point when a ‘relevant step’ is taken (that is, broadly, when the contribution is made or an asset is earmarked for an employee).

Employer contributions to section 615 schemes, which are established to provide benefits to employees who work wholly or mainly overseas, will give rise to a charge when the contribution is made, but the disguised remuneration charge will be reduced in respect of periods from 6 April 2011 onwards when the employee is non-resident and performs duties outside the UK.

For more details on how the charge works, and the Government’s proposed exemptions, please see our pensions Prompt (sent to clients of the UK pensions team within our Employment & Benefits practice). If you would like a copy, please speak to your usual Allen & Overy contact or email

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