How a Pension Trust works - from a company director's viewpoint

1. How does a Pension Trust work?

Essentially, funds are transferred from your Company to a new legal entity - a Pension Trust. This Trust is established for your sole benefit.

Transfers to the Trust are tax deductible in the Company, so it helps to reduce Corporation Tax.

2. Tax Status of Trust

A Pension Trust is an entirely tax-free investment vehicle. No Corporation Tax, Income Tax or Capital Gains Tax is payable on any income or capital gains which arise within the Trust.

3. What can the Trust invest in?

The Trust can invest in a wide variety of assets such as:

• Stocks and Shares
• Shares in Private Companies
• Residential Property
• Commercial Property

4. Restrictions on Investments

Trophy Investments e.g. yachts, vintage cars, works of art etc. are not allowed.

In relation to property investments only, the Trust may not buy, sell or rent to or from the person the Trust is established for or the employing Company.

5. How are the funds accessed?

The funds in the Trust can be accessed as follows:

• At any time due to ill-health subject to Revenue agreement.
• At age 50, if you retire from the current Company.
• At age 60, with no necessity to retire from the current Company.

6. What tax is payable when I retire?

• 25% of the Fund can be taken out totally tax free if a 5% director (otherwise 150% of salary)
• Further withdrawals are subject to tax at the normal rate.
• If the remaining 75% is not required in the short term, it can be transferred to a follow on investment vehicle, which is also tax free. This in turn can be passed on to the next generation, if desired.

7. Who is in control?

You are in control at all times. You are a joint signatory on all transactions involving the movement of funds.

It is a Revenue requirement that a Pensioneer Trustee, such as Independent Trustee Company Ltd, is appointed to the Trust to act as a further co-signatory. The Pensioneer Trustee looks after all the compliance work in relation to establishing and running the Trust.

8. What about other employees?

Yes -  a Pension Trust can be established for any employee. If structured properly it is an excellent way of motivating and retaining key staff.