Current tax position of FURBS

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  • Ian Jones

    Ian Jones

    Principal

  • The tax advantages of Funded Unapproved Retirement Benefits Schemes (FURBS) have been eroded in recent years as part of a program to make the use of trusts less tax-efficient. As a result of this erosion, funds held within these trusts are now taxed in line with general trust rates.

    FURBS are trusts used for saving for retirement and/or succession planning that have fewer investment restrictions than registered pension schemes, but fewer tax advantages as a result. Although FURBS are no longer established, existing ones still need to be managed. Below is information on tax for general trusts:

    Income Tax

    The first £1,000 of gross income, known as the Basic Rate Band, will be taxed at the previous preferential rates; being 7.50% (previously 10%) on dividends and 20% on all other income.  Dividends are now paid gross and there is no tax credit, with any gross income above the Basic Rate Band being taxed at the higher rate tax levels.

    For the 2020/2021 tax year, income above the Basic Rate Band is taxed at 45% with the exception of dividends, which are taxed at 38.10%.

    Capital Gains Tax

    The Capital Gains Tax Rate is 28% on the sale of residential property and 20% on the sale of other assets.  The annual exempt amount is £6,150 for the tax year 2020/2021. Full details on capital gains tax can be found on the Revenue’s website.

    Inheritance Tax

    The Inheritance Tax position depends on whether the funds arose from contributions made before or after 6 April 2006.  Funds paid out on the death of a member will normally escape Inheritance Tax if they relate to contributions made to the FURBS before 6 April 2006. If contributions have been paid both before and after, the fund should be apportioned.

    Tax on retirement

    The position depends on when contributions were made.  Benefits paid on retirement in respect of a fund arising from contributions paid before 6 April 2006 can still normally be paid as a tax-free lump sum.  This is provided that some company contributions were taxed on the employee as a benefit-in-kind at the time they were made.

    For funds arising from contributions made after that time, the company may have received tax relief on the funds and the member will have to pay income tax on those funds as and when they are paid out to the member: there is no tax-free lump sum relating to contributions paid under the new regime.

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