Contract lawyer (UK) Roger Sinclair Egos Ltd

Egos Ltd - FURBS

What is a FURBS? And who should have one?

Ok, I hear you ask, what is a FURBS?

It's short for 'Funded Unapproved Retirement Benefit Scheme'.

No, don't let your eyes glaze over, it's definitely not as boring as it sounds!

If you run your own limited company, and fancy the idea of building up a fund of cash:

in a favourable tax environment
protected against risks of insolvency (either yours, or your company's)
with low 'running costs' - nearly all the money stays in the fund for your benefit
with half a mind to providing for retirement - but without the tight restrictions of 'approved' pension schemes
with the opportunity to use the money in the fund to finance capital purchases in the meantime, as if the fund were your own personal finance company (I even know someone who used his FURBS to buy a helicopter...)
which remains under your personal control at all times - there are no risks, other than those you choose to take
which doesn't involve paying a penny in commission to the insurance industry (and you don't have to have an insurance company as one of the trustees)
where you have complete flexibility to decide what contributions are made into the FURBS and when they are made, without having to enter any form of commitment to do so regularly - there are neither maximum nor minimum limits on the contributions you can make
where the whole of the fund, however large it is, can be paid to you tax-free on your retirement - and that doesn't necessarily mean from work, just retirement from working for your company

...then you should consider setting up one of these.

A FURBS won't interfere with any existing approved pension scheme you may have - except that payments made into a FURBS will increase the amount of your base salary - which is used:

to determine the maximum you can pay into an approved pension scheme.
by a mortgage lender, to fix how large a mortgage they can give you.

What is the tax position?

The opportunities offered by FURBS came about as a result of certain changes made in the 1989 Finance Act. A FURBS can be used either in conjunction with an approved pension scheme, or on its own. From the tax point of view:

your company gets full relief against Corporation tax on all sums paid into the FURBS
tax and NI is paid on the amount of your company's contributions - it goes on your P11d
the FURBS pays no tax on the contributions made into it; it pays income tax (at basic rate - 22%, or 20% on savings income, and no additional tax on dividends received with a 10% tax credit) and capital gains tax (at 40% ), subject to half the annual Capital Gains tax exemption)
Provided the company has actually paid the set-up costs (even though they may not be deductible against Corporation Tax), no Inheritance Tax is payable if you die before taking your benefits from the fund
When you retire from the company which set up the FURBS, you can take the whole fund tax free.

FURBS and pensions simplification

Proposals have been published for simplification of the pensions regime, with effect from 6^th April 2006 (“ ‘A’ Day ”).

A FURBS in existence at ‘A’ Day will have the choice of

retaining its existing position of being able to pay a 100% lump sum free of tax, but thereafter losing any other ongoing favourable tax benefits hitherto enjoyed; or
becoming registered within the new scheme, having the same ongoing privileges as other pension schemes, but being restricted to 25% in the amount that can be paid out free of tax.

There is also the possibility in suitable cases of using the legislative changes as a justifiable reason to close down the FURBS at that point and take the fund as a lump sum 100% free of tax, without waiting for retirement.

The position needs to be considered nearer the time, but it is anticipated that most FURBS will wish to retain their existing status, and it is likely that the majority will be able to find legitimate reason to pay out that lump sum sooner rather than later.

What does it cost? What happens then?

I can set up a FURBS for you for £500.00 - £750.00 plus VAT - the precise cost will depend on how straightforward (or otherwise) your own position is.

You will need two trustees - one of them should be you, and I can introduce you to an established firm of accountants who are experienced in dealing with FURBS, who will act as the second trustee, and who will give ongoing guidance and deal with the necessary annual accounts for a reasonable annual charge.

I will need to see a copy of your company's Memorandum and Articles of Association, and to get a little background information about you and about your company. It won't be necessary to involve your own accountants with the set-up - although you can of course do so if you wish.

I will prepare the documents for signature, and provide this with some brief guidance notes on managing the FURBS, telling you briefly what you can and can't do with it.

When the documents are signed you will need to open a separate bank account for the FURBS - your own bank will do for this. The trustees will be the signatories to this account.

Then, all you have to do is to have your company put some money in to start it off.

It will be for the trustees to decide on exactly how the money is to be invested. So long as the investments they choose are made on reasonably commercial terms, the decisions are theirs.

When there's enough money in the FURBS, there's no reason why the trustees cannot for example buy capital assets, and then lease those assets back either to you, or to your company (it should be borne in mind that in some situations, it may be advisable for the FURBS to do this through a separate company, owned by the FURBS).

If you feel a FURBS might be of interest to you, mail me for more information, on a 'no obligation' basis.

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This page was last updated on 17th January 2005.

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