Private and Confidential
Mr Kishor Shah
26 Pembroke Road
Moor Park 
Middx
HA6 2HR 
									17 August 2007 

Dear Kishor

ONLY 4 U LIMITED RETIREMENT BENEFITS SCHEME 

Further to our recent correspondence, I set out below my advice regarding the appointment of Kiran as Trustee and member to the scheme plus the matter of enhanced and primary protection. 

I enclose a Deed of Appointment to bring Kiran in as a Trustee of the scheme. The effective date will be from 6th April 2006. I also enclose a member announcement letter from the Trustees for her invitation as a scheme member. This states the benefits the scheme intends to provide, the effective date for membership will be from 6th April 2006. 

I also enclose two nomination of beneficiary forms completion for each of you. Please retain the original on your files and return copies to me. 

Enhanced Protection

Turning to the matter of enhanced protection, I have carried out a number of enquiries on your behalf regarding the issues that need to be considered. It is quite a complicated and contradictory position. 

Enhanced protection allows individuals whose funds may breach the lifetime allowance protection from the lifetime allowance charge. The lifetime allowance charge arises under a number of circumstances, the main one being at the date that the benefits of the scheme are paid out. 

Enhanced protection cannot be applied for where a contribution is paid into a scheme or your  benefit, this includes the arrangement of life assurance policies where tax relief applies.

I understand that Only 4 U paid a pension contribution into the scheme of £100,000. It is important to note that if the contribution was paid for the sole intention of providing you with pension benefits you cannot then apply for enhanced protection. Your only route out of this would be for the contribution to be refunded back to the Company as being paid in error. 

If there is no employment or written record of the payment being “allocated” to you, then the Company at it’s discretion may make payments into the scheme “general fund” for provision of pension benefits for future scheme members. Under these circumstances no refund to the Company would be required. When I had your Deed drafted, it’s effectiveness was from the date of the new tax regime i.e. 6th April 2006. 

Tax Relief

You also need to consider the matter of tax relief. HMRC’s position on tax relief for employer contributions are that they should be wholly and exclusively for the purpose of trade. If Kiran is admitted to the scheme, the Company should not be eligible for tax relief on  pension contributions paid in her favour as this test is not met. Those “third party” contributions may however be recovered for tax relief purposes on her earnings. 

It is at this point the position becomes contradictory; the Company’s contributions to the scheme does qualify for tax relief purposes where they are paid to the general account for provision of benefits to future scheme members. It is at the Trustees discretion to allocate contributions paid into the general fund and time those allocations as they see fit; Kiran could therefore be allocated those funds. I cannot see how HMRC could possibly police or regulate this, since their own rules solely apply on the transfer of funds from one member to another not to a common trust scheme; they may regulate this at a future date but it is an area of pensions practice that only a few specialists are familiar with. 

Lifetime allowance charge

The aim of this exercise is to allow you to build up funds in a tax exempt environment until such time that you draw the income and maximum tax free sum. Also, the scheme is tax exempt on death benefits before age 75 (assuming of course no benefits are drawn) under enhanced protection and the scheme could therefore act as a useful long term family trust, avoiding inheritance tax at the same time. 

The lifetime allowance charge increases each year the following rates apply:

2007/08 - £1,600,000 
2008/09 - £1,650,000 
2009/10 - £1,750,000 
2010/11 - £1,800,000

If you feel that on current rates of growth your fund will exceed the lifetime allowance, then you should consider enhanced protection, bearing in mind the caveats I have given above. I have obtained an application for enhanced protection for you and enclose this for your completion. I will need to undertake a valuation of your assets in any event for the scheme accounts as at 5th April 2006. 

You will appreciate that a lot of work has gone into assessing the various permutations and options available to you and as such I cannot cover this in the scheme administration of £450, which you pay on an annual basis. As such, it will be necessary to raise an invoice for this exercise which will be £350, you will also need to settle the cost for the admission of Kiran into the Scheme under a Deed, which is drawn up by White & Co Solicitors, their cost for this is £250. 

As you are a two person scheme, it is necessary to register your scheme with the Regulator, their fee for this amounts to £24.00 p.a. I enclose the application for your signature. 

I am away on holiday for two weeks from 3rd September, Sean or Tony Okeke will cover for me. You have my mobile number in any event if you Bob and Praful wish to cover any points needed. If you would like me to pop by to run through this before I go, please let me know asap as my diary is filling up fast.  

Kind regards

Yours sincerely

Gavin McCloskey
For Pension Practitioner .Com