FURBS – how to get the best out of yours
The Funded Unapproved Retirement Benefit Scheme (FURBS) is a very specific type of retirement benefit scheme characterised by having fewer restrictions – but fewer tax advantages – than many other schemes. The FURBS is no longer an option for those looking to create a new savings source for old age. However, while it is not available as a new retirement savings vehicle, there are many still in existence. If you have a FURBS then it’s often difficult to find the right trustee to manage it effectively – service levels aren’t consistent in the industry and costs charged by some providers are escalating. The best way to optimise the FURBS is with the right provider.
What are FURBS?
The FURBS has many of the features of a ‘regular’ pension scheme except that it has a much larger limit when it comes to a fund size that still attracts (some) tax benefits. It was first created in 1989 when the earnings cap was introduced for approved pension schemes – at the time that earnings cap was just £60,000. So, the FURBS provided a form of top up benefits for higher earning employees. FURBS take the form of money purchase arrangements and are structured as UK resident or non-resident trusts – most now exist in offshore locations such as Guernsey.
Although there were no specific and unambiguous rules for FURBS, HMRC did issue guidance that purported to describe this type of retirement benefit scheme. So, there was a vague framework to what a FURBS offered that looks a little something like:
- Income tax becomes payable on benefits when they are paid out
- Employees are taxed on employer contributions as benefits in kind
- Employees are taxed on both lump sum cash payments in addition to benefits paid as income
- Corporation tax relief only applies at the point at which the benefits are actually paid to the member
The inheritance tax position
Perhaps one of the most attractive features of FURBS – apart from the reduced number of restrictions – is the position when it comes to inheritance tax. Contributions that were made to a FURBS before 6 April 2006 won’t generally be subject to inheritance tax. Inheritance tax is currently 40% over the threshold of £325,000, reduced to 36% where 10% or more of an estate is given to charity. Payments of FURBS benefits to beneficiaries on death of the member are usually free of inheritance tax and the IHT regime that applies to other discretionary trusts isn’t applicable to FURBS. So, where there is a FURBS with contributions made before the key date in 2006 it’s a very tax efficient way to pass on savings to the next generation.
