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The UK government announced in the 2010 budget that it will be introducing anti-avoidance legislation to combat the use of employee trusts and other vehicles in remuneration arrangements.

It released a statement which says, "The Government will be taking action to prevent efforts to avoid tax and National Insurance Contributions (NICs) on earnings provided through the use of trusts and other vehicles.

“Employers and employees are entering into arrangements using trusts and other vehicles that seek to avoid, defer or reduce liabilities to income tax and NICs on earnings or that seek to avoid restrictions on pensions tax relief.

“Arrangements in some cases seek to rely on the use of complex intermediary structures, some of which may be offshore.

“The Government is considering options for tackling these arrangements, including those which seek to avoid the restrictions on tax relief for pension schemes, and intends to introduce legislation in due course to take effect from 6 April 2011."

No further details are given, but Ian Jones, founder of EFRBS specialist Castellan, believes the Government is likely to include the use of sub-trusts, where close companies give monies to trusts which are then allocated so they are restricted for the benefit of individuals and families. Alternatively, benefits are provided tax-free after the end of employment.

Since it appears the measures will be preventing or deterring arrangements to disguise payments of remuneration, it is assumed that the employee would receive some sort of benefit, for example a loan.  

To disguise payments would infer that it is a non-commercial arrangement.
 
For many months, Castellan has been advocating strongly that any loan made to a member must be made by the trustees on a commercial basis.

STM Life Director, David Erhardt, commented, "Our view is that with our conservative approach and robust structure we will survive any attack."

We believe that EFRBS will be maintained as a long-term planning solution that can efficiently accumulate funds outside of an individual’s estate for inheritance tax, due to the way that the trust deed has been structured and the benefits it provides.

In particular we have always advocated that loans may be restricted, especially where the loans are not of a commercial nature.

It may be that in future companies decide to take the most prudent route and remove the loans to members altogether.