Funded Unapproved Retirement Benefit Schemes (FURBS)
A specialist pension vehicle allowing wide flexibility of investment and contribution.
The 1989 Finance Act allowed companies to establish unapproved retirement schemes (Funded Unapproved Retirement Benefit Schemes or "FURBS"). However, following the pensions tax changes introduced on 6 April 2006 (A Day), which now sees the schemes referred to as Employer-Funded Retirement Benefit Schemes (EFRBS), it would be rare for further contributions being made to existing schemes. However, assets held within the FURBS may be reinvested, and may provide a stable planning platform.
The tax advantages previously given to these schemes have not gone, and currently all income and capital gains are taxed at 40% (with the first £1,000 of gross income being taxed at the old preferential rates). However one tax benefit did survive the 2006 changes-benefits paid on death from an EFRBS will normally still escape inheritance tax on that part of the fund arising from pre April 2006 contributions.
There is however protection for pre April 2006 FURBS. Benefits paid out on retirement in respect of the fund arising from pre April 2006 contributions can still normally be paid out as a tax-free lump sum (provided that some company contributions to the FURBS were taxed on the employee as a benefit-in-kind at the time they were made.)
With effect from 6 April 2008, there is a single rate of charge to CGT of 18%. In addition, taper relief and indexation allowances will be withdrawn. There will also be the abolition of the "kink test" for assets held at 31 March 1982, abolition of halving relief, and simplification of the share identification rules. So the sale of any scheme assets from 6 April 2008 will come under this new regime. These changes were introduced in the Finance Act 2008.
The Annual Exempt Amount (AEA) will remain. For a FURBS, the level of AEA for most schemes for 2009/10 is £5,050.
Following the 'A Day' tax changes some FURBS have now been wound up, particularly where the inheritance tax shelter is perceived to be of little benefit. Before winding up a FURBS, even if of small value, a specialist review should take place to determine if it can be used effectively in the future. However some care is needed if income tax is to be avoided on lump sum benefits paid before retirement (and particularly if benefits are paid before age 50). The benefits must only be paid in accordance with the rules of the trust, and they must also be "Relevant Benefits" under Section 393B ITEPA 2003.
We can take over the Trusteeship of existing FURBS and advise on how to maximise the above potential remaining benefits.