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FURBS
The 1989 Finance Act permitted companies to establish unapproved retirement schemes (Funded Unapproved Retirement Benefit Schemes or “FURBS” – the acronym by which they became known) . Following the pensions tax changes introduced in April 2006 (A Day), after which the schemes became now referred to as Employer-Financed Retirement Benefit Scheme (EFRBS for short) it was not anticipated that any new EFRBS would be established, or any new contributions made to existing schemes. The pensions tax changes introduced by the Finance Act 2009, however, have brought EFRBS back into contention as a solution for “high earners”.
The pre A Day tax advantages previously given to these schemes have now gone and currently all income is taxed at 50% (except dividends, which are taxed at 42.5%), with capital gains tax at 28% since 23 June 2010. The first £1,000 of gross income will still be taxed at the old preferential rates of 20% on savings style income and 10% on dividends. However one tax benefit did survive the 2006 and subsequent 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.
The Annual Exempt Amount (AEA) will remain in respect of capital gains. For a FURBS, the level of AEA for most schemes for 2010/2011 is £5,050.
Full details on Capital Gains Tax (which is not just specific to trusts) can be found on the Revenue website, via the following link:-
www.hmrc.gov.uk/cgt/index.htm
A new EFRBS set up after April 2006 would not get this inheritance tax shelter. Also, since 6th April 2006, company contributions into an EFRBS would not receive any tax relief until benefits are actually paid out of the Scheme. Finally, the member would pay tax when the benefits are paid out of the new Scheme, so there is no longer a tax-free lump sum from a new EFRBS.
There is however protection for pre April 2006 EFRBS. 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 EFRBS were taxed on the employee as a benefit-in-kind at the time they were made).
Following the A Day tax changes some EFRBS have now been wound up, particularly where the inheritance tax shelter is perceived to be of little benefit. 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 also they must pass muster as “Relevant Benefits” under Section 393B ITEPA 2003. Advice should be taken.
For further information on FURBS please contact Bhargaw Buddhdev, Bronwen Morris or Ian Jones .
Barnett Waddingham Capital Trustees Limited
This company, wholly owned by Barnett Waddingham LLP, acts as a professional trustee for unapproved retirement schemes, and continues to provide this service for EFRBS that are remaining in place. Where Barnett Waddingham Capital Trustees Limited is acting as a trustee, Barnett Waddingham LLP can provide administration of the scheme including maintenance of bank accounts and investment records. We can also complete the tax returns for the trustees, and prepare annual financial statements.