What is a Group FURBS?

  • Group FURBS are top-up pension schemes for high earners and executives
  • They were set up between 1986 and 2006
  • Legislative change in 2006 means that Group FURBS are a very bad idea now!
  • However, there is a solution – moving to an International Group FURBS

Please read the following notes to find out more – or contact us now

Benefits to Corporate Clients

Why Group FURBS (Funded Unapproved Benefit Schemes) should be reviewed

  • The significant overheads related to maintaining existing arrangement which comprise
    • Cost of running the scheme and accounting for the tax of asset growth
    • Management time
    • Support costs
  • The disadvantages of continuing to run a scheme which is not understood by staff
  • Opportunity cost of not switching to a cheaper, more flexible, arrangement
  • The need to adopt a consistent approach to both pre and post A Day top-up benefits
  • Complex disclosure requirements of benefits to executives in an annual report
  • Plus all the advantages to staff listed in the Section  below

The options available to Corporate Clients who currently have a Group FURBS

  • Continue to run the arrangement as a paid-up fund until the members reach retirement age as specified in the scheme rules
    • As noted above this is expensive, time-consuming and inflexible
  • Transfer the trusteeship and the future administration of the scheme to the member
    • But it is most unlikely that a member or their new employer would accept such a transfer, so this option generally does not exist
  • Wind up the scheme and arrange settlement of the benefits
    • However, the tax position of any member who has not reached scheme retirement age is complex, so this option is unlikely to be desirable
  • Pay benefits out to those member who have already reached retirement age
    • But this still leaves the full cost and complexity of running the scheme for those members who are not of this age
  • Transfer the group arrangement to an Group Offshore FURBS and solve all the problems above
    • No ongoing cost to the company in running the scheme
    • No management time required
    • No ongoing legal or regulatory liability
    • The full responsibility of the scheme passes to the new trustees

Benefits to Your Staff

The advantages of changing from a UK FURBS to an Offshore FURBS

  • Tax advantage of UK FURBS have been gradually eroded, then removed
    • UK FURBS grow net of tax (typically 50% from April 2010); they are not tax-efficient
  • PAS, the Pension Advisory Service, advises against making contributions into a FURBS
  • Offshore FURBS offer real tax advantages over UK ones
    • Offshore FURBS grow gross, without deduction of any tax
    • Offshore FURBS are not subject to IHT or any tax upon death
  • FURBS can be cashed in tax-free; but Loans are generally a better option
    • Loans provide tax-free cash
    • On death the estate repays the loan hence reducing the IHT bill
    • And, of course, the FURBS goes to the dependents tax-free
  • Members have significant control over investment decisions, including residential property
  • Offshore FURBS can benefit everyone, whether UK resident or not.

Tax Treatment of UK FURBS v. Offshore FURBS

Investment Taxation

  • UK FURBS savings income and other income are liable to tax at 50%.
  • UK dividend income will be liable at the dividend rate applicable to trusts of 42.5% on the sum of the dividend and the notional tax credit.
  • Tax on capital gains is also payable
  • Offshore FURBS suffer no tax; the fund grows tax-free instead of being heavily taxed.

Retirement Taxation

  • UK FURBS, assuming the employee was taxed on pre A-Day employer contributions, and the employment relationship between the member and employer has ceased, and no further contributions are made after A-Day, can pay benefits as a tax-free lump sum.
  • Although 100% Tax Free Cash can be paid, this immediately puts the funds into the member’s estate and hence loses its IHT protection.
  • Tax Free Cash can only be drawn when the member retires, or reaches age 50 or leaves the employment of the sponsoring employer.
  • If income is drawn from the FURBS this will be subject to tax.
  • Offshore FURBS, however, allow income to be drawn, or partial encashments, without losing the tax-free status of the fund.
  • More importantly, the Offshore FURBS can lend the member money tax-free. Then, upon death, the estate repays the loan to the FURBS, hence reducing the size of the estate and thus the IHT payable on it, whilst the money in the FURBS goes to dependents tax-free. This is a hugely valuable IHT planning tool.

Notes for IFAs

  • This is an International variant of a UK Group FURBS.
  • Funding will always be from the transfer over of an existing Group FURBS scheme
  • Billions of pounds of FURBS monies lies neglected in old and paid-up schemes so that clients unnecessarily suffer from high tax charges.
  • Brooklands Pensions work together with both the adviser and the member to ensure that the scheme is administered correctly and complies with current legislation as well as providing consultancy on operating the scheme in an efficient manner.
  • Full marketing and technical data will be sent to you when you enquire.