The idea of a Funded
Unapproved Retirement benefit scheme (FURBs) was originally
introduced to allow companies to fund for retirement benefits
where an employees main scheme benefits exceeded the earnings
cap. The word “unapproved” in the scheme name
is misleading as FURBs have government approval and there
is a formal procedure for registering FURBs with HMRC who
confirm the status that applies.
There are attractions to
FURBs that many companies should consider. With A Day approaching
(6.4.06), the tax treatment of FURBS will change significantly
which means there are opportunities NOW in the run up to A
Day.
Pre A Day FURBs
Pre 6th April 2006 contributions
are subject to income tax and national insurance and contributions
should be fully deductible for corporation tax purposes. Income
within FURBs is subject to tax at the basic rate of 22% and
capital gains are subject to tax at 40%. Funds within FURBs
are not part of a member’s estate for IHT purposes and
all of the fund can be drawn down as a tax free lump sum.
FURBs can also make a loan to its members and these should
be allowed as a deduction from a member’s estate for
IHT purposes as well.
The main disadvantage is
that there is an immediate charge on the member to tax and
NIC which has to be fond from personal resources. FURBs have
therefore historically been regarded as just another form
of remuneration with added advantages for IHT planning.
Post A Day FURBs
After 6th April 2006 the
tax treatment changes.
Contributions will note
subject to income tax and NIC on the member when they are
made and contributions will not be deductible for corporation
tax purposes until the member draws benefits. The member will
be subject to income tax when benefits are drawn but there
will be NO NIC liability as long as the benefits are drawn
at retirement (after the member has left service). Income
and gains arising are subject to tax at 40%.
Funds attributable to post
A day contributions will be treated as part of a member’s
estate for IHT purposes and members can access funds from
their FURBs by way of loans without triggering an income tax
liability.
FURBs offer a number of
interesting opportunities and maximum tax efficiency can be
gained where you have both a Pre and post A Day FURBs.
For more information about
FURBs click here.
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